EVALUACIÓN CATALÍTICA

Finally Table 4.12 reports the means and excess returns for the January anomaly with the turn-of-the-month days. The mean of January days without the turn-of-the-month days for the DJIA turns negative to -0.01961, compared to 0.03664 with the turn-of-the-month days included. The excess returns are also negative, indicating that the turn-of-the-month was driving the January returns. The results for the FT30 show that January’s mean decreased by more than a half when the turn-of-the-month days are excluded. Although excess returns are still positive, they are no longer statistically significant. The TOPIX mean for January days excluding the turn-of-the-month days is also less than before, with the excess returns now only significant at the 10% level. These results show that the turn-of-the-month effect was driving the January anomaly in the DJIA, and contributed significantly to the January anomaly in the FT30 and TOPIX. Thus the January effect may not be as strong as first thought and that the turn-of-the-month effect may be the driving force behind the high returns documented in the first half of January.

4.6. Conclusion

Calendar anomalies are accepted in stock markets throughout the world due to the voluminous literature supporting them. However, recent evidence has suggested that these

Table 4.12: Summary statistics for the January effect excluding turn-of-the-month days.

***, **, * indicate significance at 1%, 5% and 10% respectively.

Full Sample

DJIA FT30 TOPIX January Anomaly

January Mean 0.03664 0.06650 0.11618

Standard Deviation 0.96872 1.10842 1.05183

No. of January Days 2635 1607 641

Fraction of positive January return days 0.52182 0.50840 0.49156

Non-January Mean 0.01719 0.01069 0.02021

Non-January Standard Deviation 1.10724 1.05373 1.02136

t-statistic for difference of means 0.87 2.02** 3.24***

January – TOTM Anomaly

January Mean -0.01961 0.03076 0.09967

Standard Deviation 0.95507 1.01099 1.09523

No. of January Days 1347 888 708

Fraction of positive January return days 0.50 0.50 0.52

Non-January Mean 0.02059 0.01462 0.02490

Non-January Standard Deviation 1.10211 1.06078 1.02066

t-statistic for difference of means -1.32 0.44 1.90*

Excess Returns -0.04007 (-1.32) 0.01614 (0.44) 0.07477 (1.90)*

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anomalies have diminished, or even reversed over time. In this chapter three of the most accepted calendar anomalies, the Monday effect, the January effect and the turn-of-the-month effect are examined. This chapter contributes to the literature by examining how the returns from these anomalies have behaved over time, whether they can be exploited to earn excess returns by using a simple trading strategy and whether the turn-of-the-month effect drives the January effect.

The key conclusions are;

(i) There is strong evidence of the Monday effect in the DJIA and TOPIX, but little evidence of it in the FT30. Since the publication of the seminal paper, the returns on the Monday effect have reversed in the DJIA but got stronger in the TOPIX.

(ii) The January effect is strong in the FT30 and TOPIX, but not so strong in the DJIA. Further, the January effect has decreased in magnitude since the publication of the seminal paper by Ariel in 1976.

(iii) The TOTM effect is strong in all three markets, although it has fallen in magnitude since the publication of the seminal paper in 1987.

(iv) The behaviour of the anomalies over time can be categorized into 5 types, with the DJIA presenting evidence of the AMH through the January effect, while evidence of the AMH is found through the January and Monday effect in the FT30. All of the other anomalies in the markets are characterized by a switch to efficiency or constant inefficiency indicating that market efficiency is not present.

(v) Using a simple trading strategy, only the Monday effect in the DJIA, and the TOTM effect in the DJIA and FT30 outperform the buy-and-hold strategy over the full sample. Further, studying the data after the seminal publication of each anomaly, only the Monday anomaly in the TOPIX as well as the TOTM anomaly in the FT30 and TOPIX outperforms the buy-and- hold strategy. All of the other anomalies do not beat the buy-and-hold strategy. “Double or out” and “quadruple or out” trading strategies are also conducted with results being very similar to the simple trading strategy but larger in magnitude.

(vi) The January anomaly excess returns can be accounted for by the turn-of-the-month effect in the DJIA, where January returns are not negative. In the FT30 and TOPIX, the January returns fall significantly when the turn-of-the-month days are excluded.

The fact that returns from some these calendar anomalies have decreased over time indicates the possibly these anomalies are not stylized facts about the stock market. It could be that

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investors caused these abnormal returns through irrational trades, but once they realized they were present, traded them away. This is consistent with the new AMH where profit opportunities go through cyclical fashions according to market conditions and investors learn these profit opportunities and take advantage of them. Simple investment strategies are able to generate returns greater than the market be exploiting these calendar effects over the full sample for only a few on the anomalies studied. This indicates that although these anomalies are evident in the data, they cannot be used consistently over time to generate excess returns. One explanation is that the trading strategies suggested is not sophisticated enough to take advantage of the anomalies. Another explanation is that the calendar anomalies may only work under certain market conditions, such as in booms, or bull markets. The turn-of-the- month effect appears to be responsible for the excess returns of the January anomaly in the DJIA. This is consistent with the findings of Xu and McConnell (2008) that the turn-of-the- month anomaly accounts for all the increases in the market. It also appears to have a significant impact on the excess returns of the January effect in the FT30 and TOPIX, with the FT30’s excess returns turning insignificant and the TOPIX’s decreasing to 10% significance. It may be that the turn-of-the-month effect may decrease over time, but since it is a relatively newly discovered anomaly it is still generating significant excess returns. However, it may also be the case that it is a stylized fact about the market and that it isn’t a calendar anomaly after all. Future analysis of the returns of the turn-of-the-month effect will provide answers to this question.

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