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The Monthly Effect in Stock Returns and Conditional Heteroscedasticity

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  • Menahem Rosenberg

Abstract

This paper analyzes the end-of-month (or monthly) effect in stock returns using a conditional GARCH variance model. Many researchers who have studied seasonal anomalies in stock returns have tried to explain these phenomena by looking at the stock market in isolation. In this paper, we relate the end-of-month effect to macroeconomic variables. Furthermore, we improve the efficiency of our statistical tests by including heteroscedasticity in the model. As a result, we present evidence that there is indeed an end-of-month effect distinct from the Mondays in the end-of-month effect documented by previous researchers. We show a link between this end-of-month effect and the economic business cycle, and present evidence that the end-of-month anomaly exists only during business cycle expansions; this anomaly disappears during business cycle contractions.

Suggested Citation

  • Menahem Rosenberg, 2004. "The Monthly Effect in Stock Returns and Conditional Heteroscedasticity," The American Economist, Sage Publications, vol. 48(2), pages 67-73, October.
    • Handle: RePEc:sae:amerec:v:48:y:2004:i:2:p:67-73
    DOI: 10.1177/056943450404800206
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    References listed on IDEAS

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    5. Jeffrey Jaffe & R. Westerfield, "undated". "The Week-End Effect in Common Stock Returns: The International Evidence," Rodney L. White Center for Financial Research Working Papers 3-85, Wharton School Rodney L. White Center for Financial Research.
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    10. Jeffrey Jaffe & R. Westerfield, "undated". "The Week-End Effect in Common Stock Returns: The International Evidence," Rodney L. White Center for Financial Research Working Papers 03-85, Wharton School Rodney L. White Center for Financial Research.
    11. Engle, Robert F. & Mustafa, Chowdhury, 1992. "Implied ARCH models from options prices," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 289-311.
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    Cited by:

    1. Lobão, Júlio, 2019. "Seasonal anomalies in the market for American depository receipts," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 24(48), pages 241-265.

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