BEHAVIOR OF ISLAMIC AND CONVENTIONAL HOLIDAY-EFFECT AND ADAPTIVE MARKET HYPOTHESIS: A FIRM LEVEL EVIDENCE FROM EMERGING MARKET OF ASIA
Keywords:
Adaptive Market Hypothesis, Efficient Market Hypothesis, Holiday Effect, Islamic Holiday Effect, Pakistan Stock ExchangeAbstract
This study enhances the existing literature on the Adaptive Market Hypothesis (AMH) and calendar anomalies. The study is a first attempt to link the Islamic and conventional Holidays’ effect with the Adaptive Market Hypothesis that allows the performance of well-known Holiday Effect to fluctuate over time. To fulfil the purpose of the study, the daily returns of 107 individual firms listed in Pakistan Stock Exchange over the period of 20 years (from January1996 to December 2015) are observed. To explore the varying degree of return predictability of Holiday Effect, the research utilizes four different subsamples comprising an equal length of observations of five years each. It is found that the behavior of the Holiday Effect evolves overtime as the performance of this effect varies occasionally and is consistent with AMH. Finally, the paper proposes that the Adaptive Market Hypothesis is a well elucidation of the behavior of the Holiday Effect than traditional Efficient Market Hypothesis (EMH).
References
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in Malaysia: An empirical note. International Journal of
Research in Economics and Business Management, 1(1), 23-26.
Abidin, S., Banchit, A., Sun, S., & Tian, Z. (2012). Chinese New Year
effects on stock returns: Evidence from Asia-Pacific stock
markets. In the Asian Finance Association 2012 International Conference, Taiwan.
Agrawal, A., & Tandon, K. (1994). Anomalies or Illusion? Evidence from
Stock Markets in Eighteen Countries. Journal of International
Money and Finance, 13, 83-106.
Al-Loughani, N. E., Al-Saad, K. M., & Ali, M. M. (2005). The holiday
effect and stock return in the Kuwait Stock Exchange. Global
Competitiveness, 13(1), 81-91.
Ariel, R. A. (1990). High Stock Returns before Holidays: Existence and
Evidence on Possible Causes. The Journal of Finance, 45(5), 1611-1626.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity.
Journal of Econometrics, 31(3), 307-327. doi:10.1.1.468.2892
Borowski, K. (2015). Analysis of Selected Seasonality Effects in Market of
Barley, Canola, Rough Rice, Soybean oil and Soybean Meal Future
Contracts. Journal of Economics and Management, 21(3), 73-89.
Boyle, G., Hagan, A., O’connor, R. S., & Whitwell, N. (2004). Emotion,
fear and superstition in the New Zealand stock market. New
Zealand Economic Papers, 38(1), 65-85.
Brockman, P., & Michayluk, D. (1998). The Persistent Holiday Effect:
Additional Evidence. Applied Economics Letter, 5(4), 205-209.
Brown, D. P., & Jennings, R. H. (1989). On Technical Analysis. Review
of Financial Studies, 2(4), 527-551.
Campbell, J. Y., Lo, A. W., & MacKinlay, A. C. (1997). The econometrics
of financial markets (Vol. 2, pp. 149-180). Princeton, NJ:
Princeton University Press.
Cao, X. L., Premachandra, I. M., Bhabra, G. S., & Tang, Y. P. (2009). Firm
size and the pre-holiday effect in New Zealand. International
Research Journal of Finance and Economics, 32, 171-187.
Chong, R., Hudson, R., Keasey, K., & Littler, K. (2005). Pre-Holiday
Effects: International Evidence on the Decline and Reversal of a
Stock Market Anomaly. Journal of International Money and
Finance, 24(8), 1226-1236.
Engle, R. (2001). GARCH 101: The use of ARCH/GARCH Models in
Applied Econometrics. Journal of Economic Perspectives, 15(4),157–168.
Fama, E. F. (1970). Efficient capital markets: A review of theory and
empirical work. The Journal of Finance, 25(2), 383-417.
Fields, M. J. (1934). Security Prices and Stock Exchange Holidays in
Relation to Short Selling. The Journal of Business of the
University of Chicago, 7(4), 328-338.
Grossman, S. J., & Stiglitz, J. E. (1980). On The Impossibility of
Informationally Efficient Markets. The American Economic Review,70(3), 393-408.
Halari, A. (2013). An Analysis of Monthly Calendar Anomalies in the
Pakistani Stock Market: A Study of the Gregorian and Islamic
calendars (Doctoral dissertation, University of Dundee).
Haque, A., Liu, H. C., & Nisa, F. U. (2011). Testing the Week Form
Efficiency of Pakistani Stock Market (2000-2010). International
Journal of Economics and Financial Issues, 1(4), 153-162.
Hashmi, M. A. (2014). January Effect in Pakistan: A Time Series Analysis. Market Forces, 9(1).
Huang, C. C. (2017). New Evidence on the Holiday Effect in the Chinese
Stock Market. Journal of Applied Business and Economics, 19(9), 83-98.
Hassan, M., & Sarker, A. (2018). Holiday Effect on Stock Market Return:
Evidence from Dhaka Stock Exchange (DSE). Anik, Holiday
Effect on Stock Market Return: Evidence from Dhaka Stock
Exchange (DSE)(September 10, 2018).
Kim, C. W., & Park, J. (1994). Holiday effects and stock returns: Further
evidence. Journal of Financial and Quantitative Analysis, 29(1), 145-157.
Kothari, S. P. (2001). Capital markets research in accounting. Journal of
accounting and economics, 31(1-3), 105-231.
Lakonishok, J., & Smidt, S. (1988). Are Seasonal Anomalies Real? A Ninety
Year Perspective. The Review of Financial Studies, 1(4), 403-425.
Lo, A. W. (2004). The adaptive markets hypothesis: Market efficiency
from an evolutionary perspective. Journal of Portfolio Management, 30, 15-29.
Lucey, B. M. (2005). Are Local or International Influences Responsible
for the Pre-Holiday Behavior of Irish Equities? Applied
Financial Economics, 15, 381-389.
Marrett, G. J., & Worthington, A. C. (2009). An empirical note on the
holiday effect in the Australian stock market, 1996–
2006. Applied Economics Letters, 16(17), 1769-1772.
McGuinness, P. B., & Harris, R. D. (2011). Comparison of the ‘turn-of-themonth’and
lunar new year return effects in three Chinese markets: Hong
Kong, Shanghai and Shenzhen. Applied financial economics, 21(13),
917-929. doi:http://dx.doi.org/10.1080/09603107.2010.548782
Nisar, S., & Hanif, M. (2012). Testing Weak form of Market Hypothesis:
Empirical Evidence from South Asia. World Applied Sciences Journal, 17(4), 414-427.
Picou, A. (2006). Stock Returns Behavior During Holiday Periods: Evidence
from Six Countries. Managerial Finance, 32(5), 433-445.
Poshakwale, S. (1996). Evidence on weak form efficiency and day of the week
effect in the Indian stock market. Finance India, 10(3), 605-616.
Rabbani, S., Kamal, N., & Salim, M. (2013). Testing the Weak Form Efficiency
of the Stock Market: Pakistan as an Emerging Economy. Journal of
Basic and Applied Scientific Research, 3(4), 136-142.
Rehman, S., & Rizwan, Q. M. (2014). Testing weak form efficiency of
capital markets: A case of Pakistan. International Journal of Research Studies in Management, 3(1), 65-73.
Riaz, T., Hassan, A., & Nadim, M. (2012). Market Efficiency in its Weak-
Form; Evidence from Karachi Stock Exchange of Pakistan. The
Journal of Commerce, 4(4), 9-17.
Shahid, M. N., & Sattar, A. (2017). Behavior of Calendar Anomalies,
Market Conditions and Adaptive Market Hypothesis: Evidence
from Pakistan Stock Exchange. Pakistan Journal of Commerce
and Social Sciences, 11(2), 471-504.
Shahid, N. M., & Mehmood, Z. (2015). Calendar Anomalies in Stock
Market: A Case of KSE 100 Index. International Journal of
African and Asian Studies, 7, 16-23.
Urquhart, A. (2013). An Empirical Analysis of the Adaptive Market
Hypothesis and Investor Sentiment in Extreme Circumstances.
Urquhart, A., & Hudson, R. (2013). Efficient or Adaptive Markets?
Evidence from Major Stock Markets using very Long-Run Historic
Data. International Review of Financial Analysis, 28, 130-142.
Urquhart, A., & McGroarty, F. (2014). Calendar Effects, Market Conditions
and the Adaptive Market Hypothesis: Evidence from Long-Run Data.
International Review of Financial Analysis, 35, 154-166.
Wong, W. K., Agarwal, A., & Wong, N. T. (2006). The disappearing
calendar anomalies in the Singapore Stock Market. Lahore
Journal of Economics, 11(2), 123-139.
Yuan, T., & Gupta, R. (2014). Chinese Lunar New Year effect in Asian
stock markets, 1999–2012. The Quarterly Review of Economics
and Finance, 54(4), 529-537.
Zafar, N., Urooj, S. F., Chughtai, S., & Amjad, S. (2012). Calendar
Anomalies: Case of Karachi Stock Exchange. African Journal of
Business Administration, 6(24), 7261-7271.
in Malaysia: An empirical note. International Journal of
Research in Economics and Business Management, 1(1), 23-26.
Abidin, S., Banchit, A., Sun, S., & Tian, Z. (2012). Chinese New Year
effects on stock returns: Evidence from Asia-Pacific stock
markets. In the Asian Finance Association 2012 International Conference, Taiwan.
Agrawal, A., & Tandon, K. (1994). Anomalies or Illusion? Evidence from
Stock Markets in Eighteen Countries. Journal of International
Money and Finance, 13, 83-106.
Al-Loughani, N. E., Al-Saad, K. M., & Ali, M. M. (2005). The holiday
effect and stock return in the Kuwait Stock Exchange. Global
Competitiveness, 13(1), 81-91.
Ariel, R. A. (1990). High Stock Returns before Holidays: Existence and
Evidence on Possible Causes. The Journal of Finance, 45(5), 1611-1626.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity.
Journal of Econometrics, 31(3), 307-327. doi:10.1.1.468.2892
Borowski, K. (2015). Analysis of Selected Seasonality Effects in Market of
Barley, Canola, Rough Rice, Soybean oil and Soybean Meal Future
Contracts. Journal of Economics and Management, 21(3), 73-89.
Boyle, G., Hagan, A., O’connor, R. S., & Whitwell, N. (2004). Emotion,
fear and superstition in the New Zealand stock market. New
Zealand Economic Papers, 38(1), 65-85.
Brockman, P., & Michayluk, D. (1998). The Persistent Holiday Effect:
Additional Evidence. Applied Economics Letter, 5(4), 205-209.
Brown, D. P., & Jennings, R. H. (1989). On Technical Analysis. Review
of Financial Studies, 2(4), 527-551.
Campbell, J. Y., Lo, A. W., & MacKinlay, A. C. (1997). The econometrics
of financial markets (Vol. 2, pp. 149-180). Princeton, NJ:
Princeton University Press.
Cao, X. L., Premachandra, I. M., Bhabra, G. S., & Tang, Y. P. (2009). Firm
size and the pre-holiday effect in New Zealand. International
Research Journal of Finance and Economics, 32, 171-187.
Chong, R., Hudson, R., Keasey, K., & Littler, K. (2005). Pre-Holiday
Effects: International Evidence on the Decline and Reversal of a
Stock Market Anomaly. Journal of International Money and
Finance, 24(8), 1226-1236.
Engle, R. (2001). GARCH 101: The use of ARCH/GARCH Models in
Applied Econometrics. Journal of Economic Perspectives, 15(4),157–168.
Fama, E. F. (1970). Efficient capital markets: A review of theory and
empirical work. The Journal of Finance, 25(2), 383-417.
Fields, M. J. (1934). Security Prices and Stock Exchange Holidays in
Relation to Short Selling. The Journal of Business of the
University of Chicago, 7(4), 328-338.
Grossman, S. J., & Stiglitz, J. E. (1980). On The Impossibility of
Informationally Efficient Markets. The American Economic Review,70(3), 393-408.
Halari, A. (2013). An Analysis of Monthly Calendar Anomalies in the
Pakistani Stock Market: A Study of the Gregorian and Islamic
calendars (Doctoral dissertation, University of Dundee).
Haque, A., Liu, H. C., & Nisa, F. U. (2011). Testing the Week Form
Efficiency of Pakistani Stock Market (2000-2010). International
Journal of Economics and Financial Issues, 1(4), 153-162.
Hashmi, M. A. (2014). January Effect in Pakistan: A Time Series Analysis. Market Forces, 9(1).
Huang, C. C. (2017). New Evidence on the Holiday Effect in the Chinese
Stock Market. Journal of Applied Business and Economics, 19(9), 83-98.
Hassan, M., & Sarker, A. (2018). Holiday Effect on Stock Market Return:
Evidence from Dhaka Stock Exchange (DSE). Anik, Holiday
Effect on Stock Market Return: Evidence from Dhaka Stock
Exchange (DSE)(September 10, 2018).
Kim, C. W., & Park, J. (1994). Holiday effects and stock returns: Further
evidence. Journal of Financial and Quantitative Analysis, 29(1), 145-157.
Kothari, S. P. (2001). Capital markets research in accounting. Journal of
accounting and economics, 31(1-3), 105-231.
Lakonishok, J., & Smidt, S. (1988). Are Seasonal Anomalies Real? A Ninety
Year Perspective. The Review of Financial Studies, 1(4), 403-425.
Lo, A. W. (2004). The adaptive markets hypothesis: Market efficiency
from an evolutionary perspective. Journal of Portfolio Management, 30, 15-29.
Lucey, B. M. (2005). Are Local or International Influences Responsible
for the Pre-Holiday Behavior of Irish Equities? Applied
Financial Economics, 15, 381-389.
Marrett, G. J., & Worthington, A. C. (2009). An empirical note on the
holiday effect in the Australian stock market, 1996–
2006. Applied Economics Letters, 16(17), 1769-1772.
McGuinness, P. B., & Harris, R. D. (2011). Comparison of the ‘turn-of-themonth’and
lunar new year return effects in three Chinese markets: Hong
Kong, Shanghai and Shenzhen. Applied financial economics, 21(13),
917-929. doi:http://dx.doi.org/10.1080/09603107.2010.548782
Nisar, S., & Hanif, M. (2012). Testing Weak form of Market Hypothesis:
Empirical Evidence from South Asia. World Applied Sciences Journal, 17(4), 414-427.
Picou, A. (2006). Stock Returns Behavior During Holiday Periods: Evidence
from Six Countries. Managerial Finance, 32(5), 433-445.
Poshakwale, S. (1996). Evidence on weak form efficiency and day of the week
effect in the Indian stock market. Finance India, 10(3), 605-616.
Rabbani, S., Kamal, N., & Salim, M. (2013). Testing the Weak Form Efficiency
of the Stock Market: Pakistan as an Emerging Economy. Journal of
Basic and Applied Scientific Research, 3(4), 136-142.
Rehman, S., & Rizwan, Q. M. (2014). Testing weak form efficiency of
capital markets: A case of Pakistan. International Journal of Research Studies in Management, 3(1), 65-73.
Riaz, T., Hassan, A., & Nadim, M. (2012). Market Efficiency in its Weak-
Form; Evidence from Karachi Stock Exchange of Pakistan. The
Journal of Commerce, 4(4), 9-17.
Shahid, M. N., & Sattar, A. (2017). Behavior of Calendar Anomalies,
Market Conditions and Adaptive Market Hypothesis: Evidence
from Pakistan Stock Exchange. Pakistan Journal of Commerce
and Social Sciences, 11(2), 471-504.
Shahid, N. M., & Mehmood, Z. (2015). Calendar Anomalies in Stock
Market: A Case of KSE 100 Index. International Journal of
African and Asian Studies, 7, 16-23.
Urquhart, A. (2013). An Empirical Analysis of the Adaptive Market
Hypothesis and Investor Sentiment in Extreme Circumstances.
Urquhart, A., & Hudson, R. (2013). Efficient or Adaptive Markets?
Evidence from Major Stock Markets using very Long-Run Historic
Data. International Review of Financial Analysis, 28, 130-142.
Urquhart, A., & McGroarty, F. (2014). Calendar Effects, Market Conditions
and the Adaptive Market Hypothesis: Evidence from Long-Run Data.
International Review of Financial Analysis, 35, 154-166.
Wong, W. K., Agarwal, A., & Wong, N. T. (2006). The disappearing
calendar anomalies in the Singapore Stock Market. Lahore
Journal of Economics, 11(2), 123-139.
Yuan, T., & Gupta, R. (2014). Chinese Lunar New Year effect in Asian
stock markets, 1999–2012. The Quarterly Review of Economics
and Finance, 54(4), 529-537.
Zafar, N., Urooj, S. F., Chughtai, S., & Amjad, S. (2012). Calendar
Anomalies: Case of Karachi Stock Exchange. African Journal of
Business Administration, 6(24), 7261-7271.
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Published
2018-12-15
How to Cite
Shahid, M. N., Sattar, D. A., & Aslam, S. (2018). BEHAVIOR OF ISLAMIC AND CONVENTIONAL HOLIDAY-EFFECT AND ADAPTIVE MARKET HYPOTHESIS: A FIRM LEVEL EVIDENCE FROM EMERGING MARKET OF ASIA. Journal of Business Strategies, 12(2), 199–222. Retrieved from https://greenwichjournals.com/index.php/businessstudies/article/view/348
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