The Month-of-the-year Effect in the Indian Stock Market: A Case Study on BSE SENSEX

Abstract

Efficient Market Hypothesis proposes that it is not possible to outperform the market through market timing. However, research studies over the years have reported several anomalies in stock market returns. Anomalies that are linked to a particular time are called calendar effects. The month-of-the-year effect or particularly the January effect is one of such anomalies. The present study in this context has sought to address the issue of the month-of-the-year effect in Indian Stock Market represented by BSE SENSEX during the period ranging from January 2, 2004 to December 28, 2012. The GARCH (1,1)-M model has been used to model the conditional volatility. The results indicate the presence of September and November effects in the SENSEX returns during the study period. Moreover, in the volatility equation the coefficients of March, June, August, October, November and December dummy variables are negative and significant. Hence, it is confirmed that the month- of- the year effect is also present in the variance (volatility or risk) equation.

Keywords: Month-of-The-Year Effect, Return, Volatility, GARCH-M

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