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| Type | Bachelor's Thesis |
| Scope | Discipline-based scholarship |
| Title | Seasonal Anomalies around the World |
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| Authors |
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| Supervisors |
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| Language |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 86 |
| Date | 2020 |
| Zusammenfassung | This thesis investigates the presence of seasonal anomalies in international stock markets. In contrast to previous literature, this thesis examines the most acknowledged seasonal anomalies such as the day of the week effect, turn of the month effect, sell in May effect, month effect, holiday effect, and Friday the thirteenth effect, simultaneously. Consequently, this thesis provides an extensive overview of the available evidence on seasonal anomalies from the literature to date. While many researchers have observed seasonal anomalies in various countries, this thesis adds value to the existing literature by investigating the presence for a large cross-section of 49 countries. Furthermore, the purpose of this thesis is to analyze to what extent the strength of these anomalies is related to differences in risk, measured in volatility and Sharpe Ratio. This thesis separates itself from previous research by taking into account time and risk preferences of investors around the world. Lastly, the evolution over time of the seasonal anomalies are presented. Daily and monthly logarithmic returns from 49 total return indices with a sample period from 04.01.1960 until 04.03.2020 were selected. In a first step, the six calendar effects were examined by applying dummy regression models and the non-parametric Kruskal-Wallis test. Standard errors were adjusted for autocorre- lation and heteroscedasticity based on the method of Newey and West (1987). In a second step, Sharpe Ratio and volatility differences were analyzed. In a third step, the differences in time were examined by an interaction effect with a time dummy variable. In a last step, the seasonal effects were cross-sectionally regressed by various time and risk preferences based on the finding of Rieger, Wang, and Hens (2015, 2016, 2017) from the survey “International Test on Risk Attitudes” (INTRA). Hereafter, the main findings can be summarized as follows: The day of the week effect is observed significantly in 30 out of 49 countries. On average, Monday has a negative mean return and a negative mean Sharpe Ratio in most of the countries. Interestingly, the author finds that the majority of the European, South American and African countries observe a negative Monday return, while the majority of the Asian countries do not. The Monday effect has gained in strength over time, however, not significantly. Friday mean returns, on the other hand, are significantly higher than Monday returns in 25 out of 49 countries. The results also show that Friday returns have significantly lower volatility in 20 out of 49 countries, which indicates that risk measured by volatility alone is not able to explain the high Friday returns. The Friday effect has gained in strength for the majority of the countries, but the difference in time is not robust. The remaining week days evince, on average, higher mean returns compared to Monday. In addition, the returns of the 8 days around the turn of the month (TOM) significantly differ from the rest of the month returns (ROM) in 43 out of 49 countries. The TOM effect is positive for the majority of the countries, while the remaining days of the month observe on average negative returns. The effect is not only present in Europe, but also in (South) America, Middle East, and Australia. The seasonal anomaly is less predominant in Asian countries such as Japan and Hong Kong. Analyzing the daily volatilities of each index, there were no significant difference between TOM and ROM. Hence, the higher TOM returns cannot be justified by higher volatilities. However, a stronger TOM effect in most countries also results in higher Sharpe Ratios. Similar to Plastun et al. (2019), the results confirmed that the turn of the month effect has diminished over time, especially after 2000. This thesis finds positive January returns, on average, for most of the countries. Overall, 36 out of 49 countries observe mean differences in monthly returns. However, analyzing each month individually, the month effect becomes weak. In addition, the effect has diminished over time for the majority of the months. The results on the month effect can be partially explained by the tax year hypothesis of Gultekin and Gultekin (1983), which states that countries with a January until December tax year observe on average significantly higher returns on January. However, the tax year hypothesis is not satisfactory enough to explain the differences in returns for some countries that have a different tax year period. Returns during November until April (winter period) are significantly higher than throughout May to October (summer period) in 26 out of 49 countries. In addition, the majority of the countries evince on average lower volatility throughout the winter period (not significantly). According to the results, the sell in May effect is widespread especially in Europe, North America and Asia. This result is aligned with the findings of Jacobsen and Zhang (2012). Surprisingly, the effect has gained in strength over the period of time. The summer hypothesis introduced by Bouman and Jacobsen (2002) can partially be explained by the results of this thesis. However, Southern Hemisphere countries such as Australia and Colombia both contradict the summer hypothesis. On average, the results evince positive pre-holiday returns in all countries, which aligns with the findings of Ariel (1990). However, there is no robust difference between pre- and post-holiday returns. Furthermore, the holiday effect has disappeared almost completely over time. As suggested from previous research (Agrawal (1994)), Friday the thirteenth effect similarly lacks significant evidence. Surprisingly, the mean return of Friday the thirteenth is positive for the majority of the countries. As such, this finding contradicts the superstition theory, which implies that Friday the thirteenth is an unlucky day and the returns on that day should therefore be negative. Furthermore, this thesis shows that the strength of the seasonal anomalies is related to differences in time and risk preferences across countries. By and large, countries tend to be risk averse in gains and risk-seeking in losses (Rieger, Wang, and Hens (2015)). The author finds that higher risk aversion, measured by the relative risk premia, in gains and losses are both associated with a stronger January effect. Loss aversion, on the other hand, seems to be negatively correlated with the January effect. The present bias, which is a quasi-hyperbolic time discounting factor, is negatively correlated with the January effect and the before holiday effect, respectively. The end turn of the month effect can not only be determined by the loss aversion and the relative risk premium in gains, but also by the degree of present bias. Furthermore, the author finds that the waiting tendency is positively correlated with the sell in May effect. As such, individuals who live in a country where patience is valued are more likely to observe a stronger sell in May effect. The results confirm the differences across cultures similar to Wang, Rieger, and Hens (2016). Lastly, waiting tendency is also correlated with the day of the week effect. |
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