Is There Seasonality in the Sensex Monthly Returns?
The presence of the seasonal or monthly effect in stock returns has been reported in several developed and emerging stock markets. This study investigates the existence of seasonality in Indias stock market. It covers the post-reform period. The study uses the monthly return data of the Bombay Stock Exchanges Sensitivity Index for the period from April 1991 to March 2002 for analysis. After examining the stationarity of the return series, we specify an augmented auto-regressive moving average model to find the monthly effect in stock returns in India. The results confirm the existence of seasonality in stock returns in India and the January effect. The findings are also consistent with the "tax-loss selling" hypothesis. The results of the study imply that the stock market in India is inefficient, and hence, investors can time their share investments to improve returns.
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