The Nepalese Stock Market:

Efficient and Calendar

Anomalies

Title:

The Nepalese Stock Market:

Efficient and Calendar

Anomalies

Author:

Dr. Fatta Bahadeur K.C.

Narayan Krishna Joshi

Published in:

Economic Review, Vol 17

Date:

2005

About

Presented By:

Mr. Nitesh Khatiwada

Mr. Manish Das

Ms. Dipti Dhungel

Ms. Prabha Kafle

Ms. Anjana K. C.

Ms. Roshana Machamasi

Presented in:

Seminar in Investment

Analysis and Portfolio

Management

MBM; NCC

Date:

22 May, 2016

Review

◉ Efficient Capital Market: A review of Theory and

Empirical Work – Fama, 1970

◉ Efficient Market Hypothesis?

◉ Existence of anomalies

Anomalies: Deviation from the normal or common order or rule

Introduction

General

◉ To identify stock price anomalies in the context

of Nepal

Specific

◉ To examine the existence of all type of

seasonalities in Nepalese Stock Market

◉ To test weak form of market efficiency

Objective

“

All the information set is fully reflected in

security prices – Fama (1970)

If it is impossible to make economic profit

by trading on the basis of information set

– Jensen (1978)

◉ Weak Form

◉ Semi Strong Form

◉ Strong Form

Informational Effeciency

Calendar Anomalies

◉ Seasonal Irregularities

◉ Reflected in various financial market

◉ May be result of

Data mining

Data Snooping

Anomalies

Calendar Anomalies

◉ Month of the Year Effect

Tax Loss Selling Hypothesis

The Window Selling Hypothesis

Differential Information Hypothesis

Market Microstructure Biases

Anomalies

Calendar Anomalies

◉ Day of the Week Effect

The Calendar Time Hypothesis

The Trading Time Hypothesis

Anomalies

Calendar Anomalies

◉ Holiday Effect

High rate of return before holidays

Pre Holiday

Post Holiday

Regular days

Anomalies

Calendar Anomalies

◉ Half Month Effect

Tendency of common stock return to be low

in the second half of the calendar month than

first half of the calendar month

Anomalies

Calendar Anomalies

◉ Turn of the Month Effect

Average daily rate of return on common stock

different in turn of the month than that of

remaining days of the calendar

Anomalies

Calendar Anomalies

◉ Time of the Month Effect

Returns are highest during the first third

Drop during the second third

Lowest or negative in the last third

Anomalies

◉ Daily Logarithmetic return on NEPSE calculated

◉ Time: February 1, 1995 – December 31, 2004

◉ 2345 trading days

◉ Rt = 100*Ln(NEPSEt /NEPSEt-1)

Rt : Continuously compounded rate of change in the stock market

NEPSEt : Stock market index at time t

NEPSEt-1 : Stock market index at time t-1

Ln : Natural Logarithm

Methodology

Independent Dependent

Variables

NEPSEt

NEPSEt-1

Rt

Month of the Year Effect

◉ Mean return for each month of calendar year

are equal

◉ No difference in returns across months

◉ Consistent to the result obtained for emerging

market by Jordan (Maghayereh, 2003)

Findings

Day of the Week Effect

◉ Existence of day of the week effect

◉ Different pattern from those observed in most

other developed markets

◉ Instead of negative returns of Monday or

Tuesday – negative on Thursday

◉ Significant positive return on Sundays

Findings

Holiday Effect

◉ Positive holiday effect for 1998 and 2000 but

inverted and fading holiday effect for 2002

◉ Statistically insignificant and inconsistent with

other developed markets

◉ Fading holiday effect since 2002

Findings

Half-Month Effect

◉ No half of the month effect

◉ There is no statistical difference between stock

returns of FHM and SHM

◉ Consistent to those observed in international

market

Findings

Turn of the Month (TOM) Effect

◉ No TOM effect for the period 1995-2004

◉ Significant TOM effect for 2003 and inverted

TOM effect for 1999

◉ Inconsistent to that of other international market

Findings

Time of the Month Effect

◉ No time of the month effect for entire period and

sub period, post 1999

◉ For pre 1999, reverse time of the month effect –

inconsistent to US market

Findings

◉ NEPSE is

Not efficient in weak form if day of the week

is examined

Weakly efficient in respect of other anomalies

◉ May be due to market imperfections

◉ Research required to conform the findings and

validate it for individual shares.

Summary and Conclusions

Thank You!!

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