A GARCH analysis of the holiday effect in the South African equity market
Holiday effect are part of seasonal anomalies pronounced in financial markets and are attractive to technical traders who employ past information generated from trading activities to device profitable strategies. The aim of this article is to assess the holiday anomaly on 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. The holiday effect was modelled by Generalized Auto Regressive Conditional Heteroskedasticity Model (GARCH), exponential GARCH (EGARCH) and threshold GARCH (TGARCH) models. The GARCH models were estimated in Eviews with R integration. No pre-holiday effect was found in both aggregate and sectoral indices of the mean equation. However, a negative pre-holiday effect for aggregate indices, namely the Top 40 and All Shares, and the sectoral indices of Basic materials, Industrials, Consumer goods, Health care, Consumer services, Telecommunications, Financials and Technology was observed in the variance equation. The mean equation unveiled a post-holiday effect in the aggregate indices, that is the Top 40 and All Shares, as well as the Basic materials, Industrials, Consumer goods, Health care, Consumer services, Telecommunications, Financials, and Technology sectors. The variance equation showed a positive post-holiday effect in the Top 40 and All Shares indices, together with the Basic materials, Industrials, Consumer goods, Health care, Consumer services, and Financials sectors. Investors should avoid investing in the Basic materials sector as it increases their exposure. The pre-holiday trading strategy is useful in reducing investors’ risk exposure through investing in the Basic materials sector. When it comes to post-holiday seasonal trading, it is recommended that investors focus on the Telecommunications sector to earn excess returns. Investors can avoid making losses by ignoring the Industrials sector, since it has the effect of increasing risk exposure. Our study delineates holiday anomaly for key sectorial indices in South African equity as opposed to past empirical studies that focus on aggregate indices.
Al-Hajieh, H., Redhead, K. & Rodgers, T. 2011. Investor sentiment and calendar anomaly effects: A case study of the impact of Ramadan on Islamic Middle Eastern markets. Research in International Business and Finance, 25(1): 345– 356.
Al-Khazali, O. 2014. Revisiting fast profit investor sentiment and stock returns during Ramadan. International Review of Financial Analysis, 33(C):158–170.
Al-Najaf, F.A.S., Salehi, M., & Al-Maliki, H.S.M. 2018. The effect of Islamic sacred months on stock prices in Iran and Iraq stock exchanges, ISRA International Journal of Islamic Finance, 10(1):111-119.
Ariss, T., Rezvanian, R. & Mehdian. 2011. Calendar anomalies in the Gulf Cooperation Council stock markets. Emerging Markets Review, 12(1):293–307.
Beladi, H., Chao, C.C. & Hu, M. 2016. The Christmas effect—Special dividend announcements. International Review of Financial Analysis, 43(C):15–30.
Bialkowski, J., Bohl, M.T., Kaufmann, P. & Wisniewski, T.P. 2013. Do mutual fund managers exploit the Ramadan anomaly? Evidence from Turkey. Emerging Markets Review 15(C):211–232.
Brooks, C. 2014. Introductory econometrics for finance. 3rd ed. Cambridge: Cambridge University Press.
Carchano, O. & Pardo, A. 2015. The pan-European holiday effect. Spanish Journal of Finance and Accounting / Revista Espanola de Financiacion y Contabilidad, 44(2):134-145.
Casado, J., Muga, L., & Santamaria, R. 2013. The effect of US holidays on the European markets: when the cat’s away… Accounting and Finance, 53(1):111–136.
Casalin, F. 2018. Determinants of holiday effects in mainland Chinese and Hong-Kong markets. China Economic Review, 49(2018):45–67.
Chancharat, S., Maporn, S., Phuensane, P. & Chancharat, N. 2018. Volatility of holiday effects in Thai stock market. Kasetsart Journal of Social Sciences, xxx(2018):1-6.
Chia, J. Lim, S.Y. & Ong, P.K. 2015. Pre and post chinese new year holiday effects: Evidence from Hong Kong stock market. The Singapore Economic Review, 60(4):1-14.
Coakley, J., Kuo, J. & Wood, A. 2012. The school’s out effect: A new seasonal anomaly! The British Accounting Review, 44(3):133–143.
Coutts, J. A. & Sheikh, M. A. 2002. The anomalies that aren't there: the weekend, January and pre-holiday effects on the all gold index on the Johannesburg stock exchange 1987-1997. Applied Financial Economics, 12(12):863-871.
Dodd, O. & Gakhovich, A. 2011. The holiday effect in Central and Eastern European financial markets. Investment Management and Financial Innovations, 8(4):29-35.
Dumitriu, R., Stefanescu, R. & Nistor, C. 2012a. Holiday effects during quiet and turbulent times.https://www.researchgate.net/publication/255726764_Holiday_Effects_During_Quiet_and_Turbulent_Times Date of access: 10 Oct 2018.
Dumitriu, R., Stefanescu, R. & Nistor, C. 2012b. Holiday effects on the Romanian stock market.
Gama, P.M. & Viera, F.S. 2013. Another look at the holiday effect. Applied Financial Economics, 23(20):1623-1633.
Gnanaseka, I. F. & Rajesh, E. 2016. Normal stock market life is like being on holiday: Pre-holiday effect; empirical evidence from SENSEX and NIFTY 50 indices on holiday effect in Indian stock markets. Asia Pacific Journal of Research in Business Management, 7(10):31-40.
Harvey, D.I. & Newbold, P. 2003. The non-normality of some macroeconomic forecast errors. International Journal of Forecasting, 19:635–653.
Lahav, E., Shavit, T. & Benzion, U. 2016. Can’t wait to celebrate: Holiday euphoria, impulsive behavior and time preference. Journal of Behavioral and Experimental Economics, 65(2016):128–134.
Marrett, G.J. & Worthington, A.C. 2009. An empirical note on the holiday effect in the Australian stock market, 1996–2006. Applied Economics Letters, 16(17):1769–1772.
Pantzalis, C. & Ucar, E. 2014. Religious holidays, investor distraction, and earnings announcement effects. Journal of Banking & Finance, 47(C):102–117.
Siddiqui, T.A. & Narula, I. 2013. Market Efficiency and Anomalies: Evidences from S&P CNX NIFTY. Vision: The Journal of Business Perspective, 17(3):233-245.
Qadan, M. & Kliger, D. 2016. The short trading day anomaly. Journal of Empirical Finance, 38(PA): 62–80.
Seif, M., Docherty, P. & Shamsuddin, A. 2017. Seasonal anomalies in advanced emerging stock markets. The Quarterly Review of Economics and Finance, 66(C):169–181.
Sonjaya, A.R. & Wahyudi, I. 2016. The Ramadan effect: Illusion or reality? Arab Economic and Business Journal, 11(1):55-71.
Yang, A.S. 2016. Calendar trading of Taiwan stock market: A study of holidays on trading detachment and interruptions. Emerging Markets Review, 28(C):140–154.
Yuan, T. & Gupta, R. 2014. Chinese Lunar New Year effect in Asian stock markets, 1999–2012. The Quarterly Review of Economics and Finance, 54(4):529–537.
Yuan, T. Gupta, R. & Bianchi, R.J. 2015. The pre-holiday effect in China: Abnormal returns or compensation for risk? Review of Pacific Basin Financial Markets and Policies, 18(3):1-28.
Copyright (c) 2021 Batsirai Mazviona, Gisele Mah, Ireen Choga
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.