Calendar effects in Chinese stock market - ePrints Soton.docVIP

Calendar effects in Chinese stock market Lei Gaoa and Gerhard Klingb a Nanjing University of Information Science Technology, b University of Southampton THIS IS NOT THE FINAL (POST-REVIEW) VERSION YOU FIND THE FINAL VERSION HERE: Gao, L. and G. Kling (2005) Calendar effects in Chinese stock market, Annals of Economics and Finance 6(1), 75-88. Our paper examines the calendar effects in Chinese stock market, particularly monthly and daily effects. The Shanghai Stock Exchange exhibits significantly higher monthly returns in February and November. This can be explained by the fact that the Chinese year-end is in February. Using individual stock returns, we observe the change of the calendar effect over time. In Shanghai, the year-end effect was strong in 1991 – but disappeared later. Studying weekly effects, we found that Fridays are profitable. Chinese investors are “amateur speculator” who often embezzles business fund for private trading; thus, these funds have to be paid back before weekends. JEL Classification: K22, G28, C22 Key words: year-end effect, China, anomalies, tax-loss selling 1. Introduction Capital market efficiency has been a very popular topic for empirical research since Fama (1970) introduced the theoretical analysis of market efficiency and proclaimed the Efficient Market Hypotheses. Subsequently, a great deal of research was devoted to investigating the randomness of stock price movements for the purpose of demonstrating the efficiency of capital markets. Since then, all kinds of calendar anomalies in stock market return have been documented extensively in the finance literature. The most common calendar anomalies are the January effect and the day of the week effect. Showing that market returns follow a seasonal pattern violates the assumption of weak market efficiency in that by observing the past development of returns market participants can make extraordinary profits. Accordingly, Haugen and Jorion (1996) suggested that calendar effects sho