Volume 31, Issue 4. Stock Market Anomalies in South Africa and its Neighbouring Countries

Transcription

1 Volume, Issue Sock Marke Anomalies in Souh Africa and is Neighbouring Counries Chia Ricky CheeJiun Labuan school of Inernaional Business and Finance, Universii Malaysia Sabah Lim Shiok Ye Labuan School of Inernaional Business and Finance, Universii Malaysia Sabah. Absrac This sudy adoped he alernaive approach called closure es principle which is proposed by Al e al. (0) o examine he sock marke anomalies in Souh Africa and is Neighbouring Counries. Overall, Egyp is he only counry ha has a srong Monday effec. On he oher hand, weak Monday effec is found in Mauriius, Nigeria and Tunisia sock markes. When he imevarying volailiy in he marke reurns is aken ino accoun by he EGARCH M model, srong Monday volailiy is found in Egyp while Kenya and Nigeria is found o have weak Monday volailiy. Ciaion Chia Ricky CheeJiun and Lim Shiok Ye, (0) ''Sock Marke Anomalies in Souh Africa and is Neighbouring Counries'', Economics Bullein, Vol. No. pp. 7. Conac Chia Ricky CheeJiun ricky_chia8@homail.com, Lim Shiok Ye sy_lim8@homail.com. Submied Sepember 0, 0. Published November 09, 0.

2 Economics Bullein, 0, Vol. No. pp. 7. Inroducion Since Fields (9) observed ha he US sock marke consisenly experienced significan negaive Monday reurns and posiive Friday reurns, his marke anomaly remains one of he mos popular research issues in finance. This issue embraces imporan implicaions for hose paricipans who are acively rade in markes. From previous lieraure, marke anomalies are found no only in developed markes such as Unied Saes, Unied Kingdom, Germany and Japan, bu also in emerging markes like Malaysia, Taiwan and Hong Kong. (See examples, Cross, 97; French, 980; Gibbons and Hess, 98; Keim and Sambaugh, 98; Jaffe and Weserfiled, 98; Wong e al., 99; Arsad and Cous, 996; Lucey, 000; Brooks and Persand, 00; Apolonario e al., 006.) Among he emerging markes, one of he mos appealing markes which grow rapidly in recen years is Souh Africa sock marke. The sock exchange of Souh Africa is he larges marke in Africa and i is siuaed a he corner of Maude Sree and Gwen Lane in Sandon, Johannesburg, Souh Africa. In 990, his marke conribued a oal of.9% of he GDP of he counry and i archived marke capializaion of US$8 billion a he end of 99. Recenly, he marke capializaion of he Souh Africa has increased up o US$00 billion and presenly his marke is he 6h larges sock exchange worldwide. Therefore, due o he imporan role played by his marke, i is worhwhile o reexamine he exisence of Monday effec in he sock markes of Souh Africa and also is neighbouring counries. Tradiionally, he esing procedure for he Monday effec or dayofheweek effec on he sock reurns usually involves regression model wih dummy variables. This radiional model has been replaced wih he symmerical GARCH model due o few limiaions of he model. The radiional regression model wih dummy variables assumed he residual erm is consan hrough he ime period. The regression model also fails o capure he imevarying volailiy in he reurn series. To overcome he remaining ARCH effecs in he model, few sudies sared o employ he ARCH/GARCH family o examine he Monday or dayofheweek effec. Laer, Nelson (99) developed asymmeric Exponenial GARCH or EGARCH model which is able o capure asymmeric effec. Since Engle and Ng (99) observed ha marke reacion on bad and good news ends o be asymmeric in naure, he use of symmerical GARCH model in esing marke anomalies is inadequae because he GARCH model is unable o capure asymmeric effec. Therefore, o incorporae he possible asymmery effec of sock marke behavior, he asymmeric Exponenial GARCH or EGARCH model is a beer approach o examine he Monday or dayofheweek effec and is volailiy. In he speculaion of Monday effec or dayofheweek effec, he usual approach is o es he null hypohesis ha all he mean daily reurns are equal. If his null hypohesis is rejeced, he common pracice is o look a he values of he saisics for See, Appendix for deails. Among he few, Alexakis and Xanhaki (99), Chia e al. (008) and Chia and Liew (00) are able o find evidence of he asymmeric behavior in dayofheweek effec in he sock markes.

3 Economics Bullein, 0, Vol. No. pp. 7 he regression coefficiens. If he saisic of he coefficien for a given day is significan, hen his would indicae ha he mean reurns of ha given day and Monday are differen. However, his esing procedures suffer from he socalled mulipliciy effec as illusraed by Greensone and Oyer (000) and Al e al. (0). In paricular, he radiional way of esing each null hypohesis a he significance level may lead o an inflaed occurrence of muliple ype error. Greensone and Oyer (000) have suggesed using Bonferroni procedure o overcome he problem. However, Al e al. (0) proposed an alernaive approach called closure es principle which is inroduced by Marcus e al. (976) o replace he Bonferroni procedures for examine he Monday effec or dayofheweek effec. This closed es procedure is differen from he radiional approaches in he sense ha he null hypoheses are esed in such a way ha he probabiliy of commiing ype error is always kep smaller han or equal o a given significan level for each combinaion of rue null hypoheses. Referring o he Mone Carlo sudy of Al e al. (0), he power of he closed Fes is greaer and i is superior o he Bonferroni procedure. Besides, he closed es principle and is assumpions are well explained in he sudy of Al e al. (0). Therefore, his sudy aemps o fill in he gap in he lieraure of marke anomalies in Souh Africa and is neighbouring counries by using he closure es principle in examining he dayofheweek effec. Besides, his sudy also differeniaes iself from ohers as i allows for condiional imechanging variance by using he asymmeric EGARCH Mean model. Overall, his sudy considers sock marke volailiy and is asymmeric behavior which is more applicable in sock markes, wih conrol on he muliple ype error. The paper is organized as follows, Secion saes he daa and Secion discusses he empirical mehodology. Secion presens he resuls and he las secion concludes he paper.. Daa The daa of his sudy consiss of he daily closing values of he Emerging Markes (Egyp, Morocco and Souh Africa) and Fronier Markes (Kenya, Mauriius, Nigeria and Tunisia), over he period s June 00 o 8 h Augus 0. The daily reurns are calculaed as he firs difference in he naural logarihms of he sock marke index R 00 ln( I / I ) () where I and I are he values for each index for periods and, respecively. In he case of a day following a nonrading day, he reurn is calculaed using he closing price indices of he laes rading day.

4 Economics Bullein, 0, Vol. No. pp. 7. Empirical Mehod This sudy iniially employs he following EGARCH Mean specificaion on he condiional volailiy o es he daily seasonaliy in sock marke R + iδ i + 6R + 7σ ε () i + p q ξ i ξ i logσ β j logσ j i i + βiδ i () j i σ i σ i i In Equaion (), or known as reurn equaion, R is he logarihmic reurn of he marke index a day ; R is he logarihmic reurn of he marke index a day i; δ, δ δ i, and δ are dummy variables which ake on he value if he corresponding reurn for day is a Tuesday, Wednesday, Thursday and Friday respecively and 0 oherwise. Meanwhile,,,..., 7 are he parameers o be esimaed in Equaion (). Among hem, measures he mean reurn (in percenage) on Monday; whereas,..., capure he difference of average reurn of he sock index for Tuesday, Wednesday, Thursday and Friday respecively as compared o he Monday s mean reurn. A lagged value of he reurn variable wih is coefficien, 6, is inroduced in Equaion () o avoid serial correlaion error erms in he model, which may yield misleading inferences. In he equaion, Monday dummy variable is excluded o avoid dummy variable rap. Besides, 7 measures he reward o risk raio, ε is he error erm wih zero mean and condiional variance σ. Equaion () is he variance equaion where lefhand side of he equaion is he logarihm of he condiional variance. This implies ha he leverage effec is exponenial, raher han quadraic, and ha forecass of he condiional variance are guaraneed o be nonnegaive. In his case, he presence of leverage effecs can be esed by he hypohesis ha > 0, whereas he impac is asymmeric if 0. i Referring o our case, he closure principle is applied o he mean equaion and variance equaion and i works as follows. Apar from he global and primary null hypoheses, we have o add all possible inersecions ino he se of hypoheses. The complee se of hypoheses is lised in Table as below. i 6

5 Economics Bullein, 0, Vol. No. pp. 7 Table All primary, inersecion and global hypoheses Primary Inersecion Global H H 0 i H 0 ij H 0 ijk Source Al e al. (0) 0 The closed es procedure sared wih he esing for he global null hypohesis. The closure principle saes ha if he global null hypohesis canno be rejeced, hen none of he null hypoheses saing pairwise equaliy can be rejeced. On he oher hand, if he global null hypohesis is rejeced, hen here is a need o check all he primary null hypoheses, H 0 i, and he corresponding ses of inersecion hypoheses, H 0 ij and H 0 ijk. An adjused pvalue for H 0 i is hen inroduced, which is defined as he maximum of all p values corresponding o all he hypoheses conained in he given primary hypohesis. A given primary hypohesis is rejeced if he adjused pvalue is smaller han 0%.. Empirical Resuls and Discussions A number of poins emerge from he analysis of descripive saisics. Firs, i shows he endency of he lowes mean reurn in he Nigeria marke and he highes mean reurn in Egyp marke. Follow by he mean reurn, he descripive saisics provide he sandard deviaion (Sd. Dev.), skewness and kurosis for respecive sock markes. In addiion, JarqueBera normaliy es saisics, ogeher wih is corresponding pvalue are also presened in Table. From he descripive saisics, we are able o observe he naure of he volailiy and he disribuion of he reurns. In finance, sandard deviaion is a represenaion of he risk associaed wih sock price variaion. The sock marke of Souh Africa has he highes value of sandard deviaion among ohers, follow by Egyp sock marke. This simply means ha invesing in hese wo markes has a higher risk han ohers. Moreover, he null hypohesis of he JarqueBera normaliy es is rejeced implies ha daily reurns are no normally disribued. Table Descripive Saisics for Daily Reurns Egyp Morocco Souh Kenya Mauriius Nigeria Tunisia Africa Mean Sd. Dev Skewness Kurosis JarqueBera Probabiliy

6 Economics Bullein, 0, Vol. No. pp. 7 The resuls of he mean reurns and variance equaions of he asymmeric Exponenial GARCH Mean (EGARCH M) model for he dayofheweek effec are presened in Table. The esimaed value of 7 shows negaive risk premium in Egyp, Morocco, Nigeria and Tunisia sock markes, bu only Egyp marke has a significan negaive risk premium. On he oher hand, he risk premium is posiive in Souh Africa, Kenya and Mauriius sock markes. The leverage effec erms, i, are all saisically differen from zero. Thus, his amouns o he evidence of asymmerical marke reacions owards posiive and negaive news, which reflecs he presence of asymmerical sock marke in his sudy. Moreover, he diagnosic es resuls show ha here is no remaining ARCH effec in all he esimaed EGARCH M models. Table Esimaed Exponenial GARCH Mean Resuls EGARCH Mean Resuls For DayofheWeek Effec (Reurn Equaion) Parameer Egyp Morocco Souh Africa ( p, q ) (, ) (, ) (, ) Consan, (0.6) (0.07)*** (0.0079)* (0.869) (0.0)** (0.00)* (0.688) (0.) (0.0)*** (0.6) (0.8786) Friday, (0.960) (0.6) Reurn (), 6 (0.88) (0.06)** (0.0)** (0.778) (0.907) EGARCH Mean Resuls For DayofheWeek Effec (Variance Equaion) Parameer Egyp Morocco Souh Africa Consan, β (0.96) (0.) (0.089)*** (0.00)* (0.60) (0.000) Tuesday, β (0.0) (0.60) Wednesday, β (0.86) (0.008)** Tuesday, Wednesday, Thursday, Thursday, β (0.6) 0.0 (0.90) 8

7 Economics Bullein, 0, Vol. No. pp Friday, β (0.6) (0.00)* EGARCH Mean Resuls For DayofheWeek Effec (Diagnosic Checking) ARCH LM Saisic (pvalue) Lags Lags LjungBox Q Saisic (pvalue) Lags Lags Noe *, ** and *** denoe significance a, and 0% levels respecively. Numbers in parenheses depic pvalue. The highes order of p and q considered in his sudy is. The selecion of appropriae orders of p and q in his sudy o be deermined by he smalles Schwarz Informaion Crierion (SIC) (Clare e al., 998). Table Esimaed Exponenial GARCH Mean Resuls (Con.) EGARCH Mean Resuls For DayofheWeek Effec (Reurn Equaion) Parameer Kenya Mauriius Nigeria Tunisia ( p, q ) (, ) (, ) (, ) (, ) Consan, (0.99) (0.) (0.7) (0.0) Tuesday, (0.706) (0.9880) (0.79) (0.77) Wednesday, (0.77) (0.960) (0.7) (0.60) Thursday, (0.) (0.000)** (0.8) (0.08)** Friday, (0.6) (0.867) (0.0008)* (0.0009)* Reurn (), 6 (0.079)*** (0.888) (0.9) (0.) (0.06) EGARCH Mean Resuls For DayofheWeek Effec (Variance Equaion) Parameer Kenya Mauriius Nigeria Tunisia Consan, β (0.009)** (0.09)*** (0.999) (0.0067)* (0.0) (0.67) (0.7) (0.009)* (0.76) (0.098)** (0.8) (0.0076)* (0.00)** (0.66) (0.0)** (0.608) (0.60) (0.000)* (0.0008)* 9

8 Economics Bullein, 0, Vol. No. pp Tuesday, β (0.096) (0.7) (0.00)* (0.69) Wednesday, β (0.069)** (0.8) (0.07)** (0.9) Thursday, β (0.6) (0.97) (0.000)** (0.86) Friday, β (0.66) (0.) (0.8) (0.8077) EGARCH Mean Resuls For DayofheWeek Effec (Diagnosic Checking) ARCH LM Saisic (pvalue) Lags Lags LjungBox Q Saisic (pvalue) Lags Lags Noe *, ** and *** denoe significance a, and 0% levels respecively. Numbers in parenheses depic pvalue. The highes order of p and q considered in his sudy is. The selecion of appropriae orders of p and q in his sudy o be deermined by he smalles Schwarz Informaion Crierion (SIC) (Clare e al., 998). For all he markes in his sudy, he closure es principle is applied. For he mean equaion, pvalues for hypoheses of pairwise equaliy of Monday reurns wih oher day of he week reurns are presened in Table. For each primary hypohesis, he firs value is he adjused pvalue, while he oher values are radiional pvalues. For example, in esing he hypoheses of Monday reurns are equal o Tuesday reurns (MONTUE) in Egyp sock marke, he adjused pvalue is 0.096, which is he maximum of he p values for all he hypoheses of H 0. Then, he adjused pvalues for all he hypoheses H 0 i are summarized in Table. In deermining Monday effec from he closed es resuls, we followed he definiion of Monday effec as defined by Al e al. (0). The erm weak Monday effec is used when Monday reurns are saisically differen from a leas one oher day of he week, while srong Monday effec refers o he case where Monday reurns are saisically differen from all oher days of he week. Referring o Table, Egyp is he only counry ha has a srong Monday effec as he Monday reurns differ from all oher weekdays. Besides ha, hree ou of four of he Fronier Markes (Mauriius, Nigeria and Tunisia) have a weak Monday effec. 0

9 Economics Bullein, 0, Vol. No. pp. 7 Table Adjused pvalue and radiional pvalues for he complee se of hypoheses of EGARCHMean mean equaion Egyp Morocco Souh Africa Kenya Mauriius Nigeria Tunisia MON TUE Adjused H 0 pvalue Tradiional H pvalues H Adjused pvalue Tradiional pvalues Adjused pvalue Tradiional pvalues Adjused pvalue Tradiional pvalues H H H H H H MON WED H H H H H H H H H MON THU H H H H H H H H H MON FRI H H H H H H H H H

10 Economics Bullein, 0, Vol. No. pp. 7 Table Closed FTes resuls (Mean Equaion) Primary hypohesis MONTUE MON WED MON TUE MON FRI (adjused pvalue) (adjused pvalue) (adjused pvalue) (adjused pvalue) Egyp 0.096** 0.09** 0.0*** 0.000* Morocco Souh Africa Kenya Mauriius *** Nigeria * Tunisia ** 0.008* *, ** and *** indicae significance a he %, % and 0% level. If he Monday reurn is differen from all oher days of he week, i can be concluded as srong Monday effec. If he Monday reurn is differen from a leas one oher day of he week, i can be concluded as weak Monday effec. Table 6 and Table 7 presen he closure es resuls for he variance equaion of he EGARCHMean model. In a similar manner, we deermine he adjused pvalues for he complee se of hypoheses for he variance equaion. In he following, we will use he erm weak Monday volailiy when Monday volailiy is disinguishable from a leas one oher days of he week. On he oher hand, if Monday volailiy is saisically differen from all oher days of he week, hen his can be concluded as srong Monday volailiy. Referring o Table 7, Egyp has a srong Monday volailiy while Kenya and Nigeria have a weak Monday volailiy. No significan resul is found for he oher counries.

11 Economics Bullein, 0, Vol. No. pp. 7 Table 6 Adjused pvalue and radiional pvalues for he complee se of hypoheses of EGARCHMean variance equaion Egyp Morocco Souh Africa Kenya Mauriius Nigeria Tunisia MON TUE Adjused H 0 β pvalue Tradiional H 0 β pvalues H β β Adjused pvalue Tradiional pvalues Adjused pvalue Tradiional pvalues Adjused pvalue Tradiional pvalues 0 0 β β 0 β β 0 β β β 0 β β β 0 β β β 0 β β β β H H H H H H MON WED H β H β β β 0 β β 0 β β 0 β β β 0 β β β 0 β β β 0 β β β β H H H H H H H MON THU H β H β β β 0 β β 0 β β 0 β β β 0 β β β 0 β β β 0 β β β β H H H H H H H MON FRI H β H β β β 0 β β 0 β β 0 β β β 0 β β β 0 β β β 0 β β β β H H H H H H H

12 Economics Bullein, 0, Vol. No. pp. 7 Table 8 Closed FTes resuls (Variance Equaion) Primary hypohesis MONTUE MON WED MON TUE MON FRI (adjused pvalue) (adjused pvalue) (adjused pvalue) (adjused pvalue) Egyp * * * * Morocco Souh Africa Kenya ** Mauriius Nigeria 0.068** 0.08** 0.0** 0.86 Tunisia *, ** and *** indicae significance a he %, % and 0% level. If he Monday volailiy is differen from all oher days of he week, i can be concluded as srong Monday volailiy. If he Monday volailiy is differen from a leas one oher day of he week, i can be concluded as weak Monday volailiy.. Conclusion This sudy examined he exisence of a daily paern of dayofheweek effec in he Souh Africa and is neighbouring counries sock markes by using he asymmeric Exponenial GARCH Mean model wih closure es principle which proposed by Al e al. (0). Generally, Egyp is he only counry ha has a srong Monday effec as he Monday reurns differ from all oher weekdays. Besides, weak Monday effec is found in Mauriius, Nigeria and Tunisia sock markes. When he imevarying volailiy in he marke reurns is aken ino accoun by he EGARCH M model, srong Monday volailiy is found in Egyp while Kenya and Nigeria is found o have weak Monday volailiy. However, here is no significan Monday volailiy is found in he oher markes. Lasly, he leverage effec erms are all significan, which reflecs he presence of asymmerical behavior in hese markes.

13 Economics Bullein, 0, Vol. No. pp. 7 References Alexakis, P. and Xanhakis, M. (99) Day of he week effec on he Greek sock marke Applied Financial Economics,, 0. Al, R., Forin, I. and Weinberger, S. (0) The Monday effec revisied An alernaive esing approach Journal of Empirical Finance, 8, Apolinario, R. M. C., Sanana, O. M., Sales, L. J. and Caro, A. R. (006) Day of he week effec on European sock markes Inernaional Research Journal of Finance and Economics,, 70. Arsad, Z. and Cous, J. A. (996) The weekend effec, good news, bad news and he Financial Times Indusrial Ordinary Shares Index 9 9 Applied Economics Leers,, Brooks, C. and Persand, G. (00) Seasonaliy in Souheas Asian sock markes some new evidence on Dayofheweek effecs Applied Economics Leers, 8, 8. Chia, R. C. J., Liew, V. K. S. and Syed Azizi Wafa S. K. W. (008) Dayofheweek effecs in Seleced Eas Asian sock markes Economics Bullein, 7, 8. Chia, R. C. J. and Liew, V. K. S. (00) Evidence on he Dayofheweek Effec and Asymmeric Behavior in he Bombay Sock Exchange The IUP Journal of Applied Finance, 6, 7 9. Clare, A. D., Ibrahim, M. S. B. and Thomas, S. H. (998) The impac of selemen procedures on Dayofheweek effecs Evidence from he Kuala Lumpur sock exchange Journal of Business Finance and Accouning,, 0 8. Cross, F. (97) The behavior of sock prices on Fridays and Mondays Financial Analyss Journal, 9, Engle, R. F. and Ng, V. K. (99) Measuring and Tesing he impac of News on volailiy Journal of Finance, 8, Field, M. J. (9) Sock prices a problem in verificaion Journal of Business, 7, 8. French, K. R. (980) Sock reurns and he weekend effec Journal of Financial Economics, 8, 70. Gibbons, M. R. and Hess, P. (98) Day of he week effec and Asses Reurns The Journal of Business,,

14 Economics Bullein, 0, Vol. No. pp. 7 Greensone, M. and Oyer, P. (000) Are here secoral anomalies oo? The pifalls of unrepored muliple hypohesis esing and a simple soluion Review of Quaniaive Finance and Accouning,, 7. Jaffe, J. and Weserfield, R. (98) The weekend effec in common sock reurns The inernaional evidence Journal of Finance, 0,. Keim, D. B. and Sambaugh, R. F. (98) A furher invesigaion of he weekend effec in sock reurns Journal of Finance, 9, Lucey, B. M. (000) Anomalous Daily Seasonaliy in Ireland? Applied Economics Leers, 7, Marcus, R., Periz, E. and Gabriel, K. R. (976) On closed esing procedures wih special reference o ordered analysis of variance Biomerika, 6, Nelson, D. B. (99) Condiional Heeroskedasiciy in Asse Reurns A new approach Economerica, 9, Wong, K. A., Hui, T. K. and Chan, C. Y. (99) Dayofheweek effec Evidence from developing sock markes Applied Financial Economics,,

15 Economics Bullein, 0, Vol. No. pp. 7 Appendix Marke capializaion of lised companies (% of GDP) Counry Name Counry Code Egyp, Arab Rep. EGY Morocco MAR Souh Africa ZAF Kenya KEN Mauriius MUS Nigeria NGA Tunisia TUN Toal Unied Saes USA Marke capializaion of lised companies (curren US$) Egyp, Arab Rep. EGY.76E E+09.87E E+0 8.E+0 Morocco MAR 9.66E+08.9E+09.09E+0.7E+0 6.9E+0 Souh Africa ZAF.8E+.8E+.0E+.6E+.0E+ Kenya KEN.E+08.89E+09.8E E+09.E+0 Mauriius MUS.68E+08.E+09.E+09.6E+09 6.E+09 Nigeria NGA.7E+09.0E+09.E+09.9E+0.09E+0 Tunisia TUN.E+08.9E+09.8E+09.88E+09.07E+0 Toal.E+.0E+.E+ 7.0E+.E+ Unied Saes USA.06E+ 6.86E+.E+.70E+.7E+ Source The World Bank World Developmen Indicaors. 7