Turn-of-the-year-effect in Asian stock markets

Pao Yue-kong Library Electronic Theses Database

Turn-of-the-year-effect in Asian stock markets

 

Author: Ha, Lin-tat
Title: Turn-of-the-year-effect in Asian stock markets
Degree: M.Sc.
Year: 2004
Subject: Hong Kong Polytechnic University -- Dissertations
Stock exchanges -- Asia
Financial institutions -- Asia
Department: Graduate School of Business
Pages: v, 58 leaves ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1809978
URI: http://theses.lib.polyu.edu.hk/handle/200/4896
Abstract: This thesis critically evaluates the causes for one of the most widely documented anomalies - the January effect or the turn-of-the-year effect - from ten major stock exchanges in East and Southeast Asia, for the period I January 1986 through 31 December 2001. The nonparametric tests uncovered significant month-to-month seasonality of stock returns in eight of these ten markets. Two forces of seasonal effects are considered the most relevant - the turn of Western New Year (NY) and the turn of Chinese New Year (CNY). Previous studies propose numerous explanations for the turn-of-the-year effect (e.g., information hypothesis, liquidity hypothesis, and gamesmanship hypothesis). However, few of them can identify the cause of the seasonal effects on a solid standing. The common phenomenon is that stock prices tend to rise around the turn of NY and CNY period regardless of information, liquidity, and capital-gain tax scheme, as if they are 'obligated' to rise. Wachtel (1942) has portrayed the situation quite well by signifying the turn-of-the-year effect as a result of 'the widespread hope that the new year will prove better than the old'. This 'self-fulfilling effect' is then proved to be an important determinant in the pricing of securities by this study. A distinctive feature of the thesis is the use of regression to statistically associate the magnitude of seasonality with the related variables. Inconsequence the thesis provides strong evidence that cultural and behavioral dimensions is crucial in the financial investigation of market behaviours.

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