Calendar Anomalies: How NEPSE return varies by days and months?

Sun, Aug 4, 2019 3:16 PM on Exclusive, Latest, Recommended, Stock Market,
Calendar A...

Is there any day in a week when NEPSE index performs better or worse than other days? Is there any month when market witness NEPSE index more gain or loss compared to rest of the year? We might be curious about these questions before making an investment in the stock market so that we could safeguard our hard earned money better. To answer above questions, we collected past 10 years data to find any such patterns across different days and months.

Calendar anomaly is an unusual pattern of stock return that can be observed in the stock market that can be associated with particular calendar period like days, weeks, months or years. In this article, we try to study whether these anomalies are evident our stock exchange, i.e. NEPSE. We look into two calendar anomalies, i.e. Day of the week effect and Month of the year effect.

  • Day of the week effect:

This anomaly is popular as weekdays and weekend effect wherein the first trading day of the week observes low average returns in comparison with other days. Similarly, the weekend or the final trading day observes highest average return. Similar pattern could be noted in the Nepal Stock Exchange index as well. Sunday, first trading day, resulted in -0.12% loss while Thursday, last trading day, gained the most (+0.18%). Study suggests that investors after their weekend analysis are more active in selling rather than buying on first trading day, thus the reduced returns.

  • Month of the year effect:

Commonly known as ‘January’ effect, this anomaly suggests higher average return during first month of the year than rest of the months. However, such exclusive pattern couldn’t be seen as highest return (+6.18%) is evident in month of July (Shrawan). Mostly because companies release much important yearly information such as profit, dividend capacity and other key ratios about them in this month. Therefore, increase in buying trend in the month of July causes increased returns. Nonetheless, as first month of the Nepali calendar year (Baishak) falls in mid April, second highest return (+5.63%) is observed in that month. As many investment decisions are likely to be made/ initiated during this month and with third quarter results due, investors are likely to purchase more during this month. Index suffered the most during the month of November (-2.16%).

(Disclaimer: These are analysis of the stock market behavior based on data available in last 10 years, August 2009 to July 2019. The article and the analysis are for the educational and the awareness purpose only. No statistical significance level of these data has been measured. Do not make your investment decisions solely based on these conclusions. Invest wisely.)