Ushad Subadar Agathee - 2008 Oxford Business&Economics...

2008 Oxford Business &Economics Conference Program ISBN : 978-0-9742114-7-3
TITLE PAGE:
TITLE:
MONTHLY ANOMALIES ON THE MAURITIAN EQUITY MARKET: EVIDENCE
FROM GARCH MODELS
AUTHOR’S NAME:
Mr USHAD SUBADAR AGATHEE
PHONE NUMBER:
[phone]
AFFILIATION:
DEPARTMENT OF FINANCE AND ACCOUNTING, FACULTY LAW AND
MANAGEMENT, UNIVERSITY OF MAURITIUS.
EMAIL: [email protected]
June 22-24, 2008
Oxford, UK
1

2008 Oxford Business &Economics Conference Program ISBN : 978-0-9742114-7-3
Monthly Anomalies on the Mauritian Equity Market: Evidence from GARCH models
Abstract
This paper essentially aims at examining the monthly anomalies on the Stock Exchange of
Mauritius (SEM). Daily observations from the SEMDEX for the period July 1989 to
December 2006 are used for the study. As a matter of fact, the implication of this study can
help towards the investment strategies developed to earn excess return on the SEM if the
monthly anomalies are present. The descriptive statistics also suggest the presence of January
and July effect. One plausible explanation for the July effect relates to the fiscal incentives
made available to local stock market investors. Based on the standard GARCH model, the T-
GARCH model and the E-GARCH model, evidence of monthly effect is found, suggesting
investors to consider the seasonal effects when investing on the SEM. Finally, the results
from the T-GARCH model suggest the presence of a leverage effect on the SEM.
Keywords: Month of the year effects; Stock market anomalies; African Emerging Stock
markets; Efficient market hypothesis; SEMDEX
June 22-24, 2008
Oxford, UK
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2008 Oxford Business &Economics Conference Program ISBN : 978-0-9742114-7-3
1.0 Introduction
Over the last three decades, there have been a number of studies i considering calendar
anomalies on major developed and emerging markets. Major anomalies relate to the day of
the week and the month of the year effect. This paper concentrates on the second anomaly.
Essentially, the monthly anomalies would relate to the returns being higher on certain specific
months. Undoubtedly, this is in sharp contradiction with the Efficient Market hypothesis as
prices should be random and not be predictable based on certain months.
A significant finding of most empirical research ii is the January effect where returns are
abnormally higher relative to other months. Main reasons suggested relate to the tax-loss
selling argument iii where investors sell shares on certain months to minimize their tax
liability. There is also the information release hypothesis
iv
where news are released on
specific dates or months such that this affect the trading behaviour of investors.
In the past decade, the SEM have experience major developments in terms of market size,
trading volume, number of listed companies and contribution to the Mauritian GDP.