Effects of Chinese calendar in stock market Executive summary Our paper examines effects of Chinese calendar in the stock particularly daily effects, using by two individual stocks returns and KLCI stock market returns. We employed period for 5 years in order to observe effects of Chinese. Furthermore, our investigation focus on efficient market hypothesis which based on hypothetical philosophy, that is stock price always reflects all information available and there is no undervalued or overvalued stocks in the market which means there is no Chinese calendar effects on the stock market if efficient market hypothesis is true. However, many studies indicate effects of CNY. Therefore, the backbone of this paper is to test capital market efficient and effects of CNY on the stocks. In order to investigate abnormal return, it was selected 5 trading days prior CNY and 5 trading days after CNY we found almost similar results both individual stocks for the 5 trading days before CNY but after CNY the returns was not same before Chinese New Year event. 1 introduction Since Fama (1970) proposed the theoretical analysis of market efficiency which has been interpreted as the Efficient Market Hypotheses. It has been carried out many empirical researches to investigate randomness of stock price movements for the reason of testing the efficiency of capital markets. “an efficient capital market is one in which securities prices adjust rapidly to the arrival of new information and therefore the current prices of securities reflect all information about the security” (Reilly, 2012). However, the philosophy of efficient capital market is the one of the most controversial areas in the investment research. Because of its importance and controversy, there are rapid expansions of research that has been carried out by academies and professionals in order to understand efficient capital markets and efficient market hypothesis (EMH). EMH is categorised into three sub-hypotheses which depend on the information set involved; (1) weak-form EMH, (2) semi-strong-form EHM, and strong-form EHM. Weak-form EMH assumes that current prices of securities fully reflect all securities market information, including that the historical data such prices, rate of return, trading volume data and transactions by market-makers. So, this hypothesis only implies historical market data which took place in the past and it may not have any relationship in the future rates of return. Semi-strong-form EHM proclaims that security prices adjust immediately to the release all public information and current prices fully reflect all public information. This hypothesis encompasses weak-form EHM because historical data and information of security market is not absent. Strong-form EHM intends that security prices reflect all information from public and private sources. So that, there is no a single investor who has monopolistic access to information regards to the formation of prices (Reilly, 2012). Since these market hypotheses have been developed it has documented all types of calendar and holiday anomalies in the stock market returns and it has been filed in the heart of finance literature. The most common calendar and holiday anomalies are January, Christmas and others holiday events but in Asia, Chinese New Year is most interest calendar in the region which many researches have conducted regards effect of Chinese New Year. The purpose of this paper is to examine effect in Chinese New Year by using individual stock returns and KLCI stock index data. Our study will focus five day prior of Chinese New Year and five days after Chinese New Year which will be analysis daily effects in Chinese New Year. The rest of this paper is organised as follows. Section 2 is designated past study which has been bone by others researchers which are called literature review. Section 3 takes up methodology of our study and how we obtain data and how we employ our findings. Section 4 will mention data of both individual stock returns and stock exchange. Section 5 will be interpreted findings and finally we will conclude our findings. 2 Literature Review Seasonal variations or patterns and calendar effects have been discussed by many academies and professionals in the stock markets for decades, including Chinese New Year. Abidin, et al (2012) has conducted research and observation of seven Asian-pacific countries stock markets for period of 20 years they obtain solid evidence that supporting the Chinese New Year effects. Particularly, they signal positive returns five days before Chinese New Year period in the stock market of Hong Kong, Japan, Singapore, Malaysia and Taiwan. Furthermore, they emphases that there is lack of evidence supporting that after Chinese New Year returns are positive or negative. Yen, et al (2001) observed six Asian markets and they found that there are up-moving trend movements in the stock price indices just in prior or after Chinese New Year period. Gao and Kling (2005) revealed that short term return in the period of Chinese new year which can be achieved highest returns after Chinese new year in February. However, we can see a few controversies between these findings. We will depict our study which side out findings advocate. 3 Methodologies To obtain reliable information it has been employed data obtained from two individual stocks and KLCI stock index. This data consists of daily transaction for period of 5 year which has 1499 of observations. It has been taken closing prices both individuals and stock exchanges we calculate this data by using capital asset pricing model (CAPM) in order to demonstrate market returns and individual returns. We employ this formula to calculate both individual and stock exchanges, R = (p1-p0)/p . Secondly, it was applied regression line analyses in order to obtain alpha and beta of the stocks which enables to compute abnormal rate of returns through excel data analyses. So, our input formula is this one, AR = R (i) – (α + (β*Rm)). After that draw line graph which indicates trend or fluctuation of returns which can be directly traced when there are abnormal returns (AR). 4 Data To analyses daily effects in the stock returns, we use stock index and individual stocks from KLCI stock exchanges. Table 1 shows both individuals and stock index returns from the date of 16 to 31 of the January. Furthermore, to calculate effects of Chinese calendar on stock markets we are going to observe period of 5 year daily transaction. Data is along which we cannot present here but we take a sample which we are going to focus on that is before 5 days and after 5 days of Chinese New Year. Table 1 5 effects on stock market in the week of the Chinese New Year 5.1 Regression analysis Here is the beginning point our analysis that we going to analyse market hypothesis of efficient. Early, it was mentioned that the stock price follows random walk which mean the prices should be random and unpredictable. So, if efficient market hypothesis is true it could not be exist monthly or calendar effect. However, there are many academic researches that point out exist of monthly and calendar effects. We are going to use estimating index model that is used actual data from stock index and individual securities. First and foremost, our study analysis about effects of Chinese calendar on stock market will begin analysing regression analysis. Let’s look into results from regression analysis both stocks respectively (see App). First, we are going to analyse regression line result from Public bank stock returns. The main focus on of this descriptive information is Alpha and Beta which is the bottom line of the summary of the regression analysis. It can be seen the regression intercept and slope (alpha= 0.00041% and beta = 0.284%). The positive alpha tells us when the mean value of the public Bank stock returns when market return is zero. However, standard error results lead to t-statistic with high statistical significance which almost is 1.663%. Furthermore, confidence of interval upper and lower boundaries gives 95% which indicates the probability of 0.95 and the true alpha lies wide interval from -0.0000738 to + 0.000895. The slope of the regression is 0.284% which is referred to beta. This beta measures averages in the dependent variable, which is Public Bank stock return, for changes in the stock market return. It can be seen that the standard error leads to t-statistic of 15.6399 with p-value of 3.53E-51. Beside that 95% of the confidence interval for beta lies from 0.249 to 0.32. It can be identified there is increase of Public Bank stock return. So far, it has been looked into results from the regression analysis of Public Bank security. Now we will head to our next discussion which is MayBank security. First glance at bottom penal of the regression output we saw alpha is negative that is -0.00031% and beta is 0.456% to look this negative alpha has standard error with t-statistic of -0.838. However, both lower and upper bounds of the confidence interval are 95% which the wide range of alpha lies from -0.00104 to 0.00042. However, according to (Groebner, 1993), “alpha doesn’t have a meaningful interpretation in the regression method”. Beside this indication of alpha we should also take consideration of beta, beta of this securities is 0.46% with t-statistic of 16.73. As we mention earl beta indicates relationship between dependent variable (Maybank stock return) and independent variable (market return). As long as alpha is negative is difficult to determine whether return of the stock is negative or positive. Even though, it has 95% of confidence interval 5.2 Chinese New Year abnormal return So far, it has been discussed results from regression analysis, to analyse Chinese New Year effects on the stock we select 5days prior Chinese New year event and 5days after Chinese New Year event and it was selected returns both individual stocks and KLCI market index. After that we employed formulas to find abnormal return which is AR= Ri-(α+ (β*Rm)). However, our starting point of individual stocks analysis is as follows. To emphases that if it is true existence of hypothesis market efficient there is no effect on stock during Chinese New Year. anyway we are going to find out these effects on stock period Chinese New Year whether exist or not, to estimate that it has been employed 5 years period for daily return both individuals and exchange stocks. 5.2.1 Public Bank Stock Let’s begin the analysis and interpretation Public Bank stock, most important our mission is that we want to know abnormal return on the stock during this period and secondly whether abnormal return from Chinese Events or other events. As it can be seen abnormal return graph on the Public Bank stock (see App), firstly there is no so much abnormal return during prior 5days Chinese New Year. But beginning for the first days of these 5 days prior Chinese New Year the return was flat. However, next day shows abnormal return which we don’t know what influence this abnormal return after that the return gradually declined and again become flat. It clearly can be identify Chinese New Year event stock return was flat. In contrast, after Chinese New year event, stock return shoot up which explicitly indicates abnormal return. It can be argued this abnormal is the effects of Chinese calendar. However, we don’t have clear evidence but there is advocate that depicts this changes it is effects of Chinese calendar because there is no information or announcement that Company offered. So that, this changes should be effects of Chinese calendar 5.2.2 Malayan Bank Stock So far, Public Bank Stock depicted that there effect on stock market during Chinese New Year. Yet, we don’t have solid evidence that tell us these changes are effects of the Chinese calendar. However, we will continue our discussion for the next stock that Malayan Bank Stock. As it was done early stock we presented the graph our abnormal return (see app) which represents the stock return during prior 5days of Chinese event and 5 days after Chinese event. Likewise, previous stock, this stock indicate abnormal return first day of trading and third day of trading for the first 5 days before Chinese calendar after that it declined gradually until Chinese event. Unlike previous, this stock doesn’t have clear indicates of abnormal return after CNY event it just shows fluctuation which is not far from the line. However, this indicates contradiction between stocks. If it is true effects of Chinese calendar both should indicate same picture unless there is something else which effect only one stock. To clarify why Malayan Bank stock shows difference aspect compare to Public Bank stock we browsed corporate website for the both companies we didn’t find any corporate announcement about Public Bank but there is announcement about Malayan Bank stock which company issued 3,500 of common stock on 26th of January. It is arguable this corporate even may effect Malayan bank stock return. Although, it cannot be confirmed what cause actual changes but some researchers such as (Barcley, 1987)found that when company issue new shares its stock return drop relatively. Furthermore, (bhana, 1998) has investigated effects of new capital issue on the Johannesburg stock exchange and he found that on the average, there is negative abnormal return associated with additional equity share issues announced by companies listed in the JSE. It can be a reason why MayBank stock return declined after CNY when the company issued new additional shares. Therefore, we can argue that this change may come from this new issuance of the stock. Anyway, there is lack of confidence to justify existence of Chinese calendar effects or hypothesis market efficient. 6 Conclusion To sum up, existence of Chinese calendar effects in the stock is not absent but to identify qualitative and quantitative effects it needs additional explanation and further researches. Stick to our findings we have seen 5 days prior CNY there abnormal returns both stocks. This is indication of effects of CNY on the stock. However, we also observed 5 trading days after CNY celebration we experienced controversial indication between stocks. One stock indicated clear aspect of existence of CNY effects which has been obtained abnormal return on stock while other stock shrunk rather than went up. The reason that stock dropped it can be interpreted that effects of corporate event which company announced issues of new additional shares which effects earning per share which led to dilution of the company’s stock price, for the sake of that abnormal return disappear and stock showed only fluctuation on the line graph. 7 References abidin, s. b. (2012). chinese new year effects on stock returns: evidence from asia pacific stock market. taipe, taiwan: asia finance association 2012 international confrence. Barcley, M. R. (1987, april). announcement effects og new equity issues and use intraday price data. White center for financial research . pennslyvania: university of pennslyvania. bhana, N. (1998). share price reaction to announcements of equity financing by companies lsited on the johnnesburg stock exchanges. investment analysis(48). Gao, L. k. (2005). calendar effects in chinese stock market. analysis of economics and finance, 6, 75-88. Groebner, D. s. (1993). business statistics: a decision making approach (4TH ed.). Macmillan. Reilly, F. B. (2012). analysis of invesments & management of portfolio. canada: south-western cengage learning. yen. G, .. l. (2001). On the Chinese Lunar New Year Effect in six asian stock markets: an empirical analysis. Review of Pacific basin financial markets and polocies, Vol. 4, ( No. 4 ), 476.
Posted on: Wed, 10 Jul 2013 17:09:29 +0000