Turn-of-the-Month Effect, FX Influence, and Efficient Market Hypothesis: New Perspectives from the Johannesburg Stock Exchange

Abstract

This paper examines the Turn of the Month (TOM) effect in the highly capitalized emerging South African stock market. We use data from the FTSE/JSE Africa All Shares Index (JALSH) for the period 31.12.1998-31.12.2018 and we provide empirical evidence that TOM is present in both the S. African stock market and the USDZAR FX. Thus, the S. African stock market enable us to gain new perspectives on the study of the TOM effect. Specifically, we are able to identify the optimal TOM period using an optimization algorithm either we examine the JALSH in local currency (ZAR) or in USD. Moreover, we show that the performance in the USDZAR FX market has impact: (a) on the domestic stock market’s performance (JALSH in ZAR), and (b) to the TOM effect. Finally, we present some practical investment strategies based on the TOM effect which can outperform the stock market and prove beneficial for investors in USD.

Keywords: Turn of the Month; Optimization procedures; Calendar Effects; Efficient Market Hypothesis; Investment Strategies; FX; Granger Causality

JEL Classification: F31; G11; G14