Calendar Anomalies: Definition and Background Information

Calendar Anomalies: Definition and Background Information Research Paper example
Ph.D.
Research Paper
Finance & Accounting
Pages 12 (3012 words)
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Calendar Anomalies: Definition and Background Information
Calendar anomalies, or seasonal effects, as applied to stock markets can be defined as “the tendency of financial assets returns to display systematic patterns at certain times of the day, week, month or year” (Brooks 2008, p. 454). …

Introduction

454). Although it was only recently that substantial studies were devoted to look seriously and closely into this phenomenon, calendar anomalies have always been regarded as part of the market folklore. As early as the 1930s, a few studies had already broached the idea of seasonal effects (Jacobs & Levy, p. 135).
Recently, a spate of studies looked particularly into this phenomenon despite the admitted dominance of Professor Farma’s (1970) efficient market hypothesis (EMH hereafter), which is said to largely underpin stock market and securities returns rationale. The EMH is “A market in which prices always ‘fully reflect’ available information” (cited Scheurle, p. 19). Thus, while the information-reliant EMH makes stock markets largely unpredictable, calendar anomalies results in the opposite. Moreover, they breach the EMH principle that stock returns should be random and unpredictable because they allow market participants to anticipate potential rise and fall of the market and use that knowledge to make profits (Gao and Kling 2005, pp. 75-76)
In the United States, for example, the day-of-the week and January effects have been widely studied, as a consequence of which a large amount of evidence has been found that supports their validity (Lean et al, 2007, p. 2). ...
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