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Calendar Effects in Stock Markets: Critique of Previous Methodologies and Recent Evidence in European Countries

Listed author(s):
  • Rosa Borges

This paper examines day of the week and month of the year effects in seventeen European stock market indexes in the period 1994-2007. We discuss the shortcomings of model specifications and tests used in previous work, and propose a simpler specification, usable for detecting all types of calendar effects. Recognizing that returns are non-normally distributed, autocorrelated and that the residuals of linear regressions are variant over time, we use statically robust estimation methodologies, including bootstrapping and GARCH modeling. Although returns tend to be lower in the months of August and September, we do not find strong evidence of across-the-board calendar effects, as the most favorable evidence is only country-specific. Additionally, using rolling windows regressions, we find that the stronger country-specific calendar effects are not stable over the whole sample period, casting additional doubt on the economic significance of calendar effects. We conclude that our results are not immune to the critique that calendar effects may only be a “chimera” delivered by intensive data mining. Key words: Day-of-the-week effect; Month effect, Market efficiency, European stock markets

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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2009/37.

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Date of creation: Sep 2009
Handle: RePEc:ise:isegwp:wp372009
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Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL

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