Turn of the month effect in the South African equity market: A GARCH analysis

Authors

  • Batsirai Mazviona North West University
  • Gisele Mah North-West University, South Africa
  • Ireen Choga North-West University, South Africa

Abstract

Understanding calendar patterns assist in identification of stock market return drivers and investment decision making. The objective of the study was to determine whether turn of the month effect exists in the South African equity market. Financial data for Johannesburg Stock Exchange (JSE) indices covers the period 1995-2018. Ten JSE indices namely Top 40, All Shares, Basic Materials, Industrials, Consumer Goods, Health Care, Consumer Services, Telecommunications, Financials and Technology were analysed. Logarithm returns were used in turn of the month seasonality modelling. The Generalized Auto Regressive Conditional Heteroskedasticity Model (GARCH), exponential GARCH (EGARCH) and threshold GARCH (TGARCH) models are used to model turn of the month anomaly. Models were implemented in R and Eviews software. The mean equation results of the turn of the month examination displayed a positive effect for the Top 40 and All Shares aggregate indices. Similarly, a positive turn of the month effect was observed in the Basic materials, Consumer goods, Health care, Consumer services, Financials, Technology, Industrials, and Telecommunications sectors. The variance equation showed no turn of the month effect in the Top 40 and All Shares indices, though the Basic materials sector indicated a positive turn of the month effect. For the turn of the month strategy, investing in the Telecommunications sector offers the highest returns to investors. Investors should avoid investing in the Basic materials sector as it increases their exposure. The existence of the turn of the month effect nullifies the efficient market hypothesis in the South African equity market. In contrast with previous studies, we add value by analysing turn of the month effect sectorial indices for a largest African stock market.

Author Biographies

Gisele Mah, North-West University, South Africa

Associate Professor

Ireen Choga, North-West University, South Africa

Associate Professor

References

Aziz, T. & Ansari, V.A. 2017. The turn of the month effect in Asia-Pacific markets: New evidence. Global Business Review, 19(1):214-226.
Bankoti, N. 2012. Calendar anomalies in Indian stock market. Doctoral Thesis. Kumaun University.
Brooks, C. 2014. Introductory econometrics for finance. 3rd ed. Cambridge: Cambridge University Press.
Compton, W.S., Johnson, D.T. & Kunkel, R.A. 2006. The turn of the month effect in real estate investment trusts (REITs). Managerial Finance, 32(12):969-980.
Darrat, A. F., Li, B. & Chung, R. 2013. Seasonal anomalies: A closer look at the Johannesburg stock exchange. Contemporary Management Research, 9(2):155-168.
Depenchuk, I.O., Compton, W.S. & Kunkel, R.A. 2010. Ukrainian financial markets: An examination of calendar anomalies. Managerial Finance, 36(6):502-510.
Harvey, D.I. & Newbold, P. 2003. The non-normality of some macroeconomic forecast errors. International Journal of Forecasting, 19:635–653.
Jebran, K. & Chen, S. 2017. Examining anomalies in Islamic equity market of Pakistan. Journal of Sustainable Finance & Investment, 7(3):275-289.
Kumar, S. 2015. Turn-of-month effect in the Indian currency market. International Journal of Managerial Finance, 11(2):232-243.
Kunkel, R.A., Compton, W.S. & Beyer, S. 2003. The turn of the month effect still lives: The international evidence. International Review of Financial Analysis, 12(2003):207-221.
McConnell, J.J. & Xu, W. 2008. Equity returns at the turn of the month. Financial Analysis Journal, 64(2):49-64.
Odgen, J.P. 1990. Turn of the month evaluations of liquid profits and stock returns: A common explanation for the monthly and January effects. The Journal of Finance, 45(4):1259-1272.
Oguzsoy, C.B. & Guven, S. 2006. Turn of the month and turn of the month surrounding days’ effects in Istanbul Stock Exchange. Journal of Emerging Market Finance, 5(1):1-13.
Pompian, M.M. 2012. Behavioral finance and investor types: managing behavior to make better investment decisions. New Jersey: John Wiley & Sons.
Sar, V.D. 2003. Calendar effects on the Amsterdam stock exchange. De Economist, 151(3):271-292.
Rosenberg, M. 2004. The monthly effect in stock returns and conditional heteroscedasticity. The American Economist, 48(2):67–73.
Silva, P.M. 2010. Calendar “anomalies” in the Portuguese stock market. Investment Analysts Journal, 71(2010):37-50.
Tilica, E.V. 2015. Intramonthly anomalies on the Bucharest stock exchange: Emerging markets queries in finance and business. Procedia Economics and Finance, 32(2015):271-277.
Tonchev, D. & Kim, T.H. 2004. Calendar effects in Eastern European financial markets: Evidence from Czech Republic, Slovakia and Slovenia. Applied Financial Economics, 14(14):1035-1043.
Vasileiou, E. 2018. Is the turn of the month effect an “abnormal normality”? Controversial findings, new patterns and hidden signs(?). Research in International Business and Finance, 44(2018):153-175.
Weigand, R.A. 2014. Applied equity analysis and portfolio management. New Jersey: John Wiley & Sons.
Zehr, L. 1989. Quarter’s end recovery just a house of cards. Globe and Mail, April 1, B2.
Zhao, X., Liano, K. & Hardin, W.G. 2004. Presidential election cycles and the turn of the month effect. Social science quarterly, 85(4):958-973.

Downloads

Published

2021-11-18

Issue

Section

Business Administration and Business Economics