Testing the Significance of Calendar Effects

Federal Reserve Bank of Atlanta Working Paper No. 2005-02

30 Pages Posted: 26 May 2003

See all articles by Peter Reinhard Hansen

Peter Reinhard Hansen

University of North Carolina (UNC) at Chapel Hill - Department of Economics; Copenhagen Business School, Finance; Aarhus University - CREATES

Asger Lunde

Aarhus University - School of Economics and Management; CREATES

James M. Nason

North Carolina State University - Department of Economics

Date Written: January 2005

Abstract

This paper studies tests of calendar effects in equity returns. It is necessary to control for all possible calendar effects to avoid spurious results. The authors contribute to the calendar effects literature and its significance with a test for calendar-specific anomalies that conditions on the nuisance of possible calendar effects. Thus, their approach to test for calendar effects produces robust data-mining results. Unfortunately, attempts to control for a large number of possible calendar effects have the downside of diminishing the power of the test, making it more difficult to detect actual anomalies. The authors show that our test achieves good power properties because it exploits the correlation structure of (excess) returns specific to the calendar effect being studied. We implement the test with bootstrap methods and apply it to stock indices from Denmark, France, Germany, Hong Kong, Italy, Japan, Norway, Sweden, the United Kingdom, and the United States. Bootstrap p- values reveal that calendar effects are significant for returns in most of these equity markets, but end-of-the-year effects are predominant. It also appears that, beginning in the late 1980s, calendar effects have diminished except in small-cap stock indices.

Keywords: Calendar effects, data mining, significance test

JEL Classification: C12, C22, G14

Suggested Citation

Hansen, Peter Reinhard and Lunde, Asger and Nason, James M., Testing the Significance of Calendar Effects (January 2005). Federal Reserve Bank of Atlanta Working Paper No. 2005-02. Available at SSRN: https://ssrn.com/abstract=388601 or http://dx.doi.org/10.2139/ssrn.388601

Peter Reinhard Hansen (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

HOME PAGE: http://https://sites.google.com/site/peterreinhardhansen/

Copenhagen Business School, Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Asger Lunde

Aarhus University - School of Economics and Management ( email )

Aarhus
Denmark

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

James M. Nason

North Carolina State University - Department of Economics ( email )

Campus Box 8110
NC State University
Raleigh, NC 27695-8110
United States
(919) 513-2884 (Phone)
(919) 515-5613 (Fax)

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