Revising the Tom Effect Study: Why Does It Fade and Reappear? Practical Policy Implications and Thoughts for Further Study

International Journal of Banking, Accounting and Finance, 8(2), 146-173, 2017

Presented at the 6th National Conference of the Financial Engineering and Banking Society, 20 - 21 December, 2015

41 Pages Posted: 18 Apr 2018

See all articles by Evangelos Vasileiou

Evangelos Vasileiou

University of the Aegean, Department of Financial and Management Engineering

Date Written: December 30, 2015

Abstract

The purpose of this paper is to examine in detail the Turn of the Month (TOM) effect and to offer a detailed explanation for the controversial empirical findings that have been documented in the literature. Using data from the USA stock market, the results suggest that returns during the TOM period outperform the returns during the rest of the month period (non - turn of the month days - NTOM). However, the statistical significance of the TOM and the NTOM returns is significantly influenced by: (i) the definitely - selected TOM time span, (ii) the capitalization, (iii) the econometric modeling, (iv) the applied mean equation, (v) the examined time period, and (vi) the financial trend. Therefore, the existence or fade of the TOM effect should be examined by taking into consideration all the aforementioned factors. Moreover, the empirical findings suggest that when the TOM returns are positive and statistically significant there is a positively growing financial trend, while when the NTOM is negative and statistically significant the NTOM days coincide with a financial crisis (or negative financial trend). The latter results could pave the way for further TOM studies which would examine whether the TOM period could be an indicator of the upcoming financial conditions. Finally, the paper suggests how these findings could be practically useful for investors, traders and financial advisors.

Suggested Citation

Vasileiou, Evangelos, Revising the Tom Effect Study: Why Does It Fade and Reappear? Practical Policy Implications and Thoughts for Further Study (December 30, 2015). International Journal of Banking, Accounting and Finance, 8(2), 146-173, 2017, Presented at the 6th National Conference of the Financial Engineering and Banking Society, 20 - 21 December, 2015, Available at SSRN: https://ssrn.com/abstract=3153055

Evangelos Vasileiou (Contact Author)

University of the Aegean, Department of Financial and Management Engineering ( email )

45, Kountourgiotou str.
Chios, GA 82100
Greece

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