Efficient Market Hypothesis and Calendar Effects: Empirical Evidences from the Indian Stock Markets

Business Analyst, Volume 37, Issue 2, pp 145-160

17 Pages Posted: 10 Jun 2017

See all articles by Harish Kumar

Harish Kumar

University of Delhi

Rachna Jawa

University of Delhi - Shri Ram College of Commerce

Date Written: March 12, 2017

Abstract

The Efficient Market hypothesis is a cornerstone of modern investment theory that essentially advocates the futility of information in generation of abnormal returns in capital markets over a period of time. However, the existence of anomalies challenge the notion of efficiency in stock markets. Calendar effects, in particular, violate the weak form of efficiency, highlighting the role of past patterns and seasonality in estimating future prices. The present research aims to study the efficiency in Indian stock markets. Using daily and monthly returns of NIFTY 50 data from its inception in January 1995 to December 2015, we employ dummy variable multiple linear regression technique to assess the existence of calendar effects in India stock markets. To correct for volatility clustering and ARCH effect present in the daily returns, the results are modeled using the EGARCH estimation methodology. The study reveals the existence of calendar effects in India in form of a significant Wednesday Effect as well as a significant 'December effect', thereby suggesting that the Indian stock markets do not show informational efficiency even in the weak form, a trait observable in emerging markets.

Keywords: Calendar effects, EMH, Dummy Variable Regression, Day-of-the-week effect, Month-of-the-year effect, NIFTY

Suggested Citation

Kumar, Harish and Jawa, Rachna, Efficient Market Hypothesis and Calendar Effects: Empirical Evidences from the Indian Stock Markets (March 12, 2017). Business Analyst, Volume 37, Issue 2, pp 145-160 , Available at SSRN: https://ssrn.com/abstract=2981633

Harish Kumar (Contact Author)

University of Delhi ( email )

University Road
Kirti Nagar
Delhi, DE New Delhi 110 007
India

Rachna Jawa

University of Delhi - Shri Ram College of Commerce

North Campus
Maurice Nagar
Delhi, 110007
India

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