January Effect in Pakistan: A Time Series Analysis

Authors

  • Muhammad Arsalan Hashmi

Abstract

This study employs daily data from the Karachi Stock Exchange 100 index from 2004-2009 to investigate the presence of the January effect. Our robust econometric modelling reveals anomalous patterns in stock returns around the turn of the year. The anomaly observed in this study, however, was unlikely to represent lucrative arbitrage opportunities at the time  essentially because abnormal returns were not large enough to offset transactions costs. This finding provides confidence and assurance in the operational efficiency ofthe Pakistani capital markets.Key Words: Karachi Stock Exchange, January Effect, Garch Model, Econometric Framework

References

Agrawal, A. and Tandon, K. (1994).Anomalies or illusions? Evidence from stock markets in eighteen countries.

Journal of International Money and Finance, 13, 83-106.

Arsad. Z, and Coutts, A. (1997).Security price anomalies in the London international stock exchange: A 60 year

perspective.Applied Financial Economics, 7, 455-464.

Asteriou, D. and Kavetsos, G. (2006). Testing for the existence of the January effect in transition economies.

Applied Financial Economics Letters, 2, 375-381

Branch, B. (1977). A tax loss trading rule. Journal of Business 50, 198-207.

Bhardwaj, R. and Brooks, L.(1992).The January anomaly: Effects of low share price, transaction costs, and bidask

bias.The Journal of Finance, 47(2), 553-575.

Bollerslev, T. and Wooldridge, J. (1992). Quasi-Maximum Likelihood Estimation and Inference in Dynamic Models

with Time Varying Covariances.Econometric Reviews, 11, 143–172.

Chang,Y., Hsiao, C., Li, Q., and Yang, J. (2005).The relationship between stock returns and volatility in international

stock markets.Journal of Empirical Finance, 12, 650-665.

Chu,C., Liu, T., and Rathinasamy,R. (2004). Robust test of the January effect in stock markets using Markovswitching

model. Journal of Financial Management and Analysis, 17, 22-33.

Coutts, A., Kaplanidis, C. and Roberts, J. (2000).Security price anomalies in an emerging market: The case of the

Athens stock exchange. Applied Financial Economics, 10, 561-571.

Coutts, A.and Mills, T. (1995).Calendar effects in the London stock exchange FTSE indices. The European Journal

of Finance, 1, 79-93.

Engle, R. (1982).Autoregressive conditional heteroscedasticity with estimates of the variance of the United

Kingdom inflation. Econometrica, 50, 987-1007.

Fields, M. (1931). Stock prices: A problem in verification.Journal of Business, 4, 415-418.

Greene, W. (2008).Econometric Analysis. 6th Edition, Prentice Hall.

Hamilton, J. (1989).A new approach to the economic analysis of nonstationary time series and the business

cycle. Econometrica, 57, 357-384.

Haugen, R and Lakonishok, J. (1988).The incredible January effect: The stock market’s unsolved mystery. Dow

Jones-Irwin, Homewood, Illinois.

Keim, D. (1983).Size-related anomalies and stock return seasonality: Further empirical evidence. Journal of

Financial Economics, 12, 13-32.

Kramer, C. (1994).Macroeconomic seasonality and the January effect.The Journal of Finance, 49, 1883-1891.

Lakonishok,J. and Maberly, E. (1990).The weekend effect: Trading Patterns of individual and institutional

investors. The Journal of Finance, 45, 231-243.

Marquering, W., Nisser. J., and Valla, T. (2006). Disappearing anomalies: A dynamic analysis of the persistence

of anomalies.Applied Financial Economics, 16, 291-302.

Moller, N. and Zilca, S. (2008).The evolution of the January effect. Journal of Banking and Finance, 32, 447-457.

Persons, W. (1919).Indices of business conditions. The Review of Economic Statistics, 1, 5-107

Reinganum, M. (1983).The anomalous stock market behavior of small firms in January:Empirical tests for taxloss

selling effects. Journal of Financial Economics, 12, 89-104.

Ritter, J. (1988).The buying and selling behavior of individual investors at the turn of the year. The Journal of

Finance, 43, 701-717.

Rozeff, M. and Kinney, W. (1976).Capital market seasonality: The case of stock returns.Journal of Financial

Economics, 3, 379-402.

Starks,L., Yong. L., and Zheng, L. (2006).Tax-loss selling and the January effect: Evidence from municipal bond

closed-end funds. The Journal of Finance, 61, 3049-3067.

Sullivan, R., Timmermann, A., and White, H. (2001). Dangers of data mining: The case of calendar effects in

stock returns.Journal of Econometrics, 105, 249-286.

Downloads

Published

2014-06-01

Issue

Vol. 9 No. 1 (2014): Market Forces Research Journal Volume 9 No 1

Section

Articles

License

  1. Copyright of all the submissions to the Market Forces will remain to the contributors.
  2. Anyone is allowed to distribute, remix, tweak, and build upon his/her work, even commercially, as long as it is credited/cited to the original contributors of the Market Forces.