Calendar Effects on the Stock Market

Download or read book Calendar Effects on the Stock Market written by Anastasiia Pozdniakova and published by . This book was released on 2019 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: For a long time, the Efficient-Market Hypothesis (EMH) was regarded as the fundamental theory of capital market research. It argues that asset prices “fully reflect” all available information; as such, it is impossible to “beat the market” since market prices should only react to new information. Since the end of the 1970s, there has been an increasing amount of empirical research, which has been raising doubts about the EMH. Random walk theory is an important component of the EMH: The more efficient the market, the more random the stock prices change. However, the EMH and the idea of stock prices following a random walk do not amount to the same thing: The random walk of stock prices does not imply that the stock market is efficient with rational traders. On the one hand, criticism of the EMH was based on psychological phenomena subsumed under the term behavioral finance (investors do not act rationally), and on the other based on non-behavioral explanatory approaches such as calendar effects. Calendar effects are mentioned in the literature as an uneven distribution of capital in the stock market. This means that the investment time would play a decisive role in a future performance. If these seasonal patterns materialize in the stock market, the question arises why they are not always considered by investors. Is the existence of such cyclical patterns explainable and still be found in the stock market? The calendar effects, described in the literature, are examined in detail. It is analyzed, whether these anomalies occur constantly, or they have already disappeared. Moreover, the thesis examines, whether the deviations between periods are essential, or simply a temporary paradox. Based on an analysis of certain indices (ATX, CAC40, DAX30, DJIA, IBEX35, and RTSI) two calendar anomalies are examined over time.