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Turn-of-the-Month Effect in Stock Markets Around the World

| | Posted in: Calendar Effects

Is the Turn-of-the-Month (TOTM) effect globally ubiquitous and persistent? In his August 2014 paper entitled “The Turn-of-The-Month-Effect: Evidence from Periodic Generalized Autoregressive Conditional Heteroskedasticity (PGARCH) Model”, Eleftherios Giovanis examines the TOTM effect in 20 country stock markets spanning the Americas, Australia, Europe and Asia. He defines TOTM as the interval including the last trading day of each calendar month through the third trading day of the next calendar month. He applies complex techniques to account for potential autocorrelation, heteroskedasticity and volatility clustering in daily market returns. His samples vary in start date by country, from as early as January 1950 (for the U.S.) to as late as January 2001 (for Australia). He considers full samples from the beginning of each country series through 2013 and two subsamples: (1) from the beginning of each country sample through 2007; and, (2) the financial crisis of 2008 through 2009. Using daily closes for the 20 country stock market indexes as described, he finds that:

  • The TOTM effect is statistically evident in full samples for 19 of 20 country stock markets (the exception is Australia).
  • The effect is statistically evident in the two subsamples for 20 of 20 countries.

In summary, evidence suggests that investors may be able to take advantage of the TOTM effect when timing trades in stock markets worldwide.

The principal caution regarding findings is that the testing is fairly abstract. Model trading strategies with frictions, which likely vary by country market, may show that statistical findings are not practically exploitable.

See also “Turn-of-the-Month Effect Persistence and Robustness” and “Does the Turn-of-the-Month Effect Work for Sectors?” for pragmatically oriented tests of the the TOTM effect in U.S. stock market.


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