The Turn-of-the-Month-Effect: Evidence from Periodic Generalized Autoregressive Conditional Heteroskedasticity (PGARCH) Model

International Journal of Economic Sciences and Applied Research, 7 (3): 43-61

19 Pages Posted: 25 Mar 2015

See all articles by Eleftherios Giovanis

Eleftherios Giovanis

Aydin Adnan Menderes University, Nazilli Faculty of Economics and Administrative Sciences; Economic Research Forum (ERF)

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Date Written: December 1, 2014

Abstract

The current study examines the turn of the month effect on stock returns in 20 countries. This will allow us to explore whether the seasonal patterns usually found in global data; America, Australia, Europe and Asia. Ordinary Least Squares (OLS) is problematic as it leads to unreliable estimations; because of the autocorrelation and Autoregressive Conditional Heteroskedasticity (ARCH) effects existence. For this reason Generalized GARCH models are estimated. Two approaches are followed. The first is the symmetric Generalized ARCH (1,1) model. However, previous studies found that volatility tends to increase more when the stock market index decreases than when the stock market index increases by the same amount. In addition there is higher seasonality in volatility rather on average returns. For this reason the Periodic-GARCH (1,1) is estimated. The findings support the persistence of the specific calendar effect in 19 out of 20 countries examined.

Keywords: Calendar Effects, GARCH, Periodic-GARCH, Stock Returns, Turn of the Month Effect

JEL Classification: C22, G14

Suggested Citation

Giovanis, Eleftherios, The Turn-of-the-Month-Effect: Evidence from Periodic Generalized Autoregressive Conditional Heteroskedasticity (PGARCH) Model (December 1, 2014). International Journal of Economic Sciences and Applied Research, 7 (3): 43-61, Available at SSRN: https://ssrn.com/abstract=2584213

Eleftherios Giovanis (Contact Author)

Aydin Adnan Menderes University, Nazilli Faculty of Economics and Administrative Sciences ( email )

Nazilli IIBF
Sumer Kampusu
Aydin, Nazilli 09800
Turkey

Economic Research Forum (ERF) ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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