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1
See Mookherjee and Yu (1999a, p. 104).
Seasonality tests on the Shanghai and Shenzhen stock exchanges 683
Table 1. Chinese stock markets and dates used in the study
Note: The ending dates for all the indices are the same while the beginning dates differ based on data availability and the
beginning of trading.
15
30
10
20
5
SSEAD
SZSAD
10
0
0
−5
−10 −10
1 386 772 1158 1544 1930 2316 2702 3088 3474 3860 1 377 754 1131 1508 1885 2262 2639 3016 3393 3770
Index
Index
Fig. 1. Time-series plot of SSEAD
Fig. 3. Time-series plot of SZSAD
7.5
5.0
5.0
2.5
2.5
SSEBD
SZSBD
0.0
0.0
−2.5
−2.5
−5.0
−5.0
−7.5
1 356 712 1068 1424 1780 2136 2492 2848 3204 3560 1 338 676 1014 1352 1690 2028 2366 2704 3042 3380
Index Index
II. Data returns of the following four stock indices from the
stock markets of Shanghai and Shenzhen (all are
The data for the study consist of the daily returns of capitalization-weighted indices).
four indices, the Shanghai A Stock Index (SSEAD),
Shanghai B Stock Index (SSEBD), Shenzhen A Stock (1) SSEAD tracks the daily price performance of
Index (SZSAD) and Shenzhen B Stock Index all A shares listed on the Shanghai Stock
(SZSBD). The exact dates of the indices differ from Exchange. The index was developed with
each other and are presented in Table 1 and pictured a base value of 100 on 19 December 1990.
in Figs 1–4. (2) SSEBD tracks the daily price performance of
The data for the study were obtained from the all B shares listed on the Shanghai Stock
Global Financial Database.2 It consists of the daily Exchange. The index was developed with
2
The descriptions of the indexes in this section have been obtained from the same database.
684 A. K. Ogunc et al.
Table 2. Summary statistics for the different Chinese markets
Market Sample size Mean (%) SD (%) Coefficient of variation Range Skew Kurtosis
SSEAD 3811 0.0324 1.2003 3710.14 40.3656 6.19 151.25
SSEBD 3520 0.0041 0.954 23513.6 11.9596 0.38 5.49
SZSAD 3721 0.0169 1.063 6295.46 21.3698 1.17 17.15
SZSBD 3325 0.0091 0.9631 10602.47 13.2474 0.34 7.33
Note: The above table shows summary statistics for the returns of each individual index.
a base value of 100 on 21 February 1992. It was with and without price limits. The dataset for each
also opened to domestic Chinese investors on index was broken into the following time periods:
19 February 2001.
(3) SZSAD tracks the daily price performance of (1) First price limit period up to 11 May 1992.
all A shares on the Shenzhen Stock Exchange. (2) No price limit period from 12 May 1992 to
The index was developed with a base value of 13 December 1996.
100 on 3 April 1991. (3) Price limit period from 16 December 1996
(4) SZSBD tracks the daily price performance of until the end of our data period.
all B shares listed on the Shenzhen Stock (4) In addition to the above three periods, we also
Exchange. The index was developed with check for the overall period ending with
a base value of 100 on 28 February 1992 and 14 September 2006.
has been opened to domestic investors since
19 February 2001. The results of our analysis are presented in the next
section.
The closing values of the indices are used to calculate
the daily returns used in the study. Consistent with III. Empirical Evidence
earlier studies, we exclude the days occurring after
official holidays. We parsed our data based on the We first examine the summary statistics and inter-
price limit restriction placed on the specific markets. index relationships between the four indices used in
As mentioned in the study of Chen et al. (2005), the the study in first subsection. In second subsection,
Chinese stock markets were subject to both price we examine the Day-of-the-Week Effect for the
limits and no price limits over the past 17 years. four indices during the four time periods. Finally,
Chen et al. (2005) state: we examine the January Effect in third subsection.
Notes: The above table gives the correlation coefficient matrix for the four stock index returns under study.
The Pearson p-values signify the significance of the r-values. The sample size is given as N values for each
individual index.
Pearson p-values in parentheses.
Notes: The above table shows the results of the equal variance test by
Levane for any continuous distribution. We did two sets of normality tests
(Anderson Darling and Kolmogorov–Smirnov, results not reported here)
and both rejected the normality assumption for all series.
p-values in parentheses.
Notes: The test for equal means of the returns is shown in the table above.
The null hypothesis for the test is of equal means. The results do not change
even when we assume unequal variances (not reported here). These values
are based on equal variance assumption. Pearson p-values are in
parenthesis and the results are robust for both equal and unequal variance
assumptions.
The most striking statistic is Shanghai A shares Table 3 shows the correlations between the returns
return distribution is highly skewed to the right (6.19). of the four indices and the associated p-value.
Thus, there are a lot more very high daily returns than There is significant positive correlation between all
corresponding low ones. The other indices are skewed of the indices. The highest correlations are between A
to the right as well, but it is not as extreme. This shares traded on the two exchanges. Domestic traders
appears significantly different from the other three perhaps can go to the exchange offering better prices
indices in the study.4 and thus keep the returns relatively in line with each
In order to study the relationships further, we have other. Likewise, the correlation is much lower for the
examined the correlations between the returns A and B shares of each market as it is much harder
(Table 3), the difference in volatilities (Table 4) and for traders to bounce between these markets. Also,
the equality of means (Table 5). the selection of B-listed stocks is much smaller than
4
We checked the data for stationarity. The augmented Dickey–Fuller tests have been conducted for all series. Null hypothesis
of nonstationarity has been rejected in all cases. The test has been considered up to a maximum of 15 autoregressive lag
lengths. The statistics for 5% left tail critical values of the limit distribution of Tau were SSEAD 40.2, SSEBD 39.4,
SZSAD 40.78 and SZSBD 37.05. All four have a p-value of (<0.0001).
686 A. K. Ogunc et al.
A-listed stocks. Thus, to some extent the indices are (overall, limit, no-limit and limit again) were
very different. significant. It appears that the B index is not prone
The results in Table 4 show that the variances of the to any of the Day-of-the-Week Effects.
indices are significantly different except for the A The Shenzhen market results of which are
shares of the two markets and the B shares of the two shown in Tables 8 and 9 are different from the
markets. Table 5 shows that none of the index means Shanghai market in that neither of them show any
are significantly different from another index mean. returns of significance over any of the periods.
In the next subsection we look for the Day-of-the- The only exception to this is a negative return on
Week Effects in the four indices. Wednesdays between 1992 and 1996, the no-limit
period in the Shenzhen B market. But for this
Day-of-the-Week Effect exception, there appears to be no Day-of-the-Week
Effects in the two stock index returns. It should
We first examine the Day-of-the-Week Effect in the also be noted here that we excluded the first limit
four stock indices employing a regression equation period from our analysis of the Shenzhen B
used by French (1980). This equation is in most major market since the data starts after limits were
studies that examine the Day-of-the Week Effect over lifted in 1992.
the past two decades. The model is In the next subsection, we examine the January
Effect on the four indices.
Rt ¼ 0 þ 1 d2t þ 2 d3t þ 3 d4t þ 4 d5t þ "t ð2Þ
January Effect
where Rt is the return of the stock index on day t, and
the binary variables dit indicate the Day-of-the-Week Lastly, we study another market anomaly for the four
on which the return is observed (d2t ¼ Tuesday, stock indices representing the Chinese stock market.
d3t ¼ Wednesday, d4t ¼ Thursday, d5t ¼ Friday). A study of the January Effect in the Chinese stock
The intercept 0 measures the mean return for market is very interesting for two reasons. The first is
Monday, and the coefficients 1 through 4 measure that this is the first study to look into the January
the difference between Monday returns and the Effect of the stock markets of China. The second is
return for each of the other four days of the work that the Chinese New Year normally starts within
week. The results of the regression are presented a few weeks after its western counterpart. Hence, it is
in Tables 6–9.5 important to see if the January Effect found
Table 6 shows the results of the regression analysis commonly in Western markets actually has an
for SSEAD. It is evident from Regression 1 that impact on the Chinese stock indices.
Friday’s return is greater than Monday’s (significant We test the following equation for the January
at 0.01 level) for the entire period of 1990 to 2006. Effect:
There is some significantly positive return on
Wednesdays at 0.10 level. Regression 2 shows that Rt ¼ 0 þ 1 Jant þ "t ð3Þ
the intercept representing Monday’s return is
significant prior to 1992 and Regression 3, which In the above equation, the independent variable Jant
shows the results of the no-limit period in the mid- is a binary variable that takes a value of 1 for the
nineties, mirrors Regression 1 in that the Friday first 5 trading days of January, 0 otherwise. This
return is positive and significant. The return to price regression will check to see if the January Effect, so
limits seems to have affected the high Friday return commonly found in earlier studies in other markets
because Regression 4 depicts no abnormal return for has an impact on the Chinese stock indices.
any weekday over the period 1996 to 2006. The results of the regression analysis are presented
Table 7 shows the results for the Shanghai B share in Tables 10–13.
market index. It can be seen that except for a brief The results presented for SSEAD in Table 10 show
time in 1992 when Friday returns were positive and that for the overall period of over 16 years, there is
significant, none of the other returns for any period a definite positive January Effect. The coefficient for
5
We conducted the Durbin–Watson test to check for autocorrelation and the White’s test to check for heteroskedasticity.
As the residuals of some of the regressions exhibited autocorrelation and/or heteroskedasticity, we used the Newey and West
(1987) correction which corresponds to using a Bartell Kernel with bandwidth parameter L þ 1 where L is the lag length.
Due to space limitations, we do not report the exact statistics of the diagnostic tests. This also applies to the regressions in
Tables 10–13 examining the January Effect. These values are however available on request.
Seasonality tests on the Shanghai and Shenzhen stock exchanges 687
Table 6. Regression results for the Day-of-the-Week Effect for the Shanghai A market
SSEAD
Notes: The above table shows the results for the French (1980) regression model for the Shanghai A index. Regression 1 is for
the entire period of the study. Regression 2 is for the first price limit period. Regression 3 is when price limits were lifted.
Regression 4 covers the period after 13 December 1996 to the end of the sample period based on the re-imposed price limits.
The dependent variable in all regressions is the daily return for the index. As the residuals of some of the regressions exhibited
autocorrelation and/or heteroskedasticity, we used the Newey and West (1987) correction to correct for autocorrelation and
heteroskedasticity when needed.
***, ** and * indicate significance at 0.01, 0.05 and 0.10 levels, respectively.
January is significantly positive at 0.05 level. It is also concentrated in the Shanghai A index much like the
noticeable that the coefficient of January is significant Day-of-the-Week Effect. We analyse our results and
for the most recent period of 1996–2006, the second offer conclusions in the next section.
limit period. However, there is no January Effect
during the time of no price limits (Regression 3).
These results are interesting because abnormal
returns appear to be a feature of periods when price IV. Analysis and Conclusions
limits were enforced.
There is no January Effect evident for any of the In the present study, we examine the volatility and
three indices in either the overall period or the price market anomalies related to four indices from the
limit and no-price limit periods (Tables 11, 12 Shanghai and Shenzhen stock exchanges in China.
and 13). It appears that the January Effect is Our results show that the Shanghai A stock index is
688 A. K. Ogunc et al.
Table 7. Regression results for the Day-of-the-Week Effect for the Shanghai B market
SSEBD
Notes: The above table shows the results for the French (1980) regression model for the Shanghai B index. Regression 1 is for
the entire period of the study. Regression 2 is for the first price limit period. Regression 3 is when price limits were lifted.
Regression 4 covers the period after 13 December 1996 to the end of the sample period based on the re-imposed price limits.
The dependent variable in all regressions is the daily return for the index. As the residuals of some of the regressions exhibited
autocorrelation and/or heteroskedasticity, we used the Newey and West (1987) correction to correct for autocorrelation and
hetroskedasticity when needed.
*** and ** indicate significance at 0.01 and 0.05 levels, respectively.
more volatile than the other indices and is more the high variance of daily returns make statistical
prone to the Day-of-the-Week and January Effects. testing difficult.
Our results indicate that there is significant positive The question remains as to why there are higher
skewness in returns from the Shanghai A index. returns in one index which are not evident in others.
While the mean returns of the four indices are Part of this is due to differing compositions of the
statistically identical, there appears to be more indices. This could also be due to the fact that
profit-making opportunities (or perhaps loss suffer- investors in China first had a chance to invest in
ing) in the Shanghai A exchange because of its the Shanghai A index. The investors fully aware of
higher volatility. This is reflected in the higher the market anomalies in the Western markets tried to
Friday returns and January returns for the take advantage of that in the Chinese market thereby
investors in this index as compared with the other inadvertently creating higher volatility and positive
three indices. It should be noted that these effects are Friday and January returns in the Shanghai A index.
inconsistent from one period to the next, and that This is also reflected in the fact that no such volatility
Seasonality tests on the Shanghai and Shenzhen stock exchanges 689
Table 8. Regression results for the Day-of-the-Week Effect for the Shenzen A market
SZSAD
Notes: The above table shows the results for the French (1980) regression model regression for the Shenzhen A index.
Regression 1 is for the entire period of the study. Regression 2 is for the first price limit period. Regression 3 is when price
limits were lifted. Regression 4 covers the period after 13 December 1996 to the end of the sample period based on the
re-imposed price limits. The dependent variable in all regressions is the daily return for the index. As the residuals of some of
the regressions exhibited autocorrelation and/or heteroskedasticity, we used the Newey and West (1987) correction to correct
for autocorrelation and heteroskedasticity when needed.
or returns occur in the B indices and surprisingly in on Tuesday. We find no evidence of either of those.
the Shenzhen A index. The differences in the results could be due to several
Our results are contrary to Cai et al. (2006) who structural factors in the nature of the two studies.
find evidence of the Day-of-the-Week Effect in the The first is that Cai et al.’s (2006) sample ends in 2002
Chinese stock markets. They show that A shares tend while ours include data up to 2006. It is possible that
to have negative average returns on Monday, and participants tried to take advantage of the negativity
that A and B shares tend to have negative average on earlier weekdays and may have inadvertently
returns on Tuesday. We find no evidence of either of nullified the Weekend Effect that existed in the
these. Our results are contrary to the evidence Chinese stock markets. This has happened in the
presented by Cai et al. (2006) who find evidence of United States and it is possible that it could have
Day-of-the-Week Effect in Chinese stock markets. happened in China too. This could account for
Their conclusion was that A shares tend to have a structural change in the indices. The second is that
negative average returns on Monday while both we parse our data based on price limit periods and
A and B shares have negative average returns nonprice limit periods. Their study is primarily to
690 A. K. Ogunc et al.
Table 9. Regression results for the Day-of-the-Week Effect for the Shenzen B market
SZSBD
Notes: The above table shows the results for the French (1980) regression model for the Shenzhen B index. Regression 1 is for
the entire period of the study. Regression 2 is for the period when price limits were lifted and Regression 3 covers the period
after 13 December 1996, to the end of the sample period based on the re-imposed price limits. The dependent variable in all
regressions is the daily return for the index. As the residuals of some of the regressions exhibited autocorrelation and/or
heteroskedasticity, we used the Newey and West (1987) correction to correct for autocorrelation and heteroskedasticity where
needed.
* Indicates significance at 0.10 level.
Table 10. Regression results for the January Effect for the Shanghai A market
SSEAD
Notes: The results of the regression checking for the January Effect for the Shanghai A index are presented in the table above.
Regression 1 is for the entire period of the study. Regression 2 is for the first price limit period. Regression 3 is when price
limits were lifted. Regression 4 covers the period after 13 December 1996 to the end of the sample period based on the
re-imposed price limits. The dependent variable in all regressions is the daily return for the index. As the residuals of some of
the regressions exhibited autocorrelation and/or heteroskedasticity, we used the Newey and West (1987) correction to correct
for autocorrelation and heteroskedasticity when needed.
***, ** and * indicate significance at 0.01, 0.05 and 0.10 levels, respectively.
Seasonality tests on the Shanghai and Shenzhen stock exchanges 691
Table 11. Regression results for the January Effect for the Shanghai B market
SSEBD
Notes: The above table shows the results for the French (1980) regression model for the Shanghai B index. Regression 1 is for
the entire period of the study. Regression 2 is for the period when price limits were lifted and Regression 3 covers the period
after 13 December 1996, to the end of the sample period based on the re-imposed price limits. The dependent variable in all
regressions is the daily return for the index. As the residuals of some of the regressions exhibited autocorrelation and/or
heteroskedasticity, we used the Newey and West (1987) correction to correct for autocorrelation and heteroskedasticity
where needed.
Table 12. Regression results for the January Effect for the Shenzen A market
SZSAD
Notes: The results of the regression checking for the January Effect for the Shenzhen A index are presented in the table above.
Regression 1 is for the entire period of the study. Regression 2 is for the first price limit period. Regression 3 is when price
limits were lifted. Regression 4 covers the period after 13 December 1996 to the end of the sample period based on the
re-imposed price limits. The dependent variable in all regressions is the daily return for the index. As the residuals of some of
the regressions exhibited autocorrelation and/or heteroskedasticity, we used the Newey and West (1987) correction to correct
for autocorrelation and heteroskedasticity when needed.
692 A. K. Ogunc et al.
Table 13. Regression results for the January Effect for the Shenzen B market
SZSBD
Notes: The above table shows the results for the French (1980) regression model for the Shenzhen B index. Regression 1 is for
the entire period of the study. Regression 2 is for the period when price limits were lifted and Regression 3 covers the period
after 13 December 1996, to the end of the sample period based on the re-imposed price limits. The dependent variable in all
regressions is the daily return for the index. As the residuals of some of the regressions exhibited autocorrelation and/or
heteroskedasticity, we used the Newey and West (1987) correction to correct for autocorrelation and heteroskedasticity where
needed.
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markets. As a result they examine the Week-of- effectiveness of price limits and stock characteristics:
evidence from the Shanghai and Shenzhen stock
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Effect. We examine the Day-of-the-Week Effect Accounting, 25, 159–82.
and the January Effect. They also examine for Demirer, R. and Lien, D. (2005) Correlation and return
spillover effect from other markets. These structural dispersion dynamics in Chinese markets, International
differences in the nature of the two studies could Review of Financial Analysis, 14, 477–91.
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go a long way in explaining the difference in the Journal of Financial Economics, 8, 55–69.
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that it is the first to examine all four major stock Asia-Pacific markets during the Asian financial crisis:
indices in China over such a long period. It is also a nonparametric approach, Omega, The International
the first study that examines the Day-of-the-Week Journal of Management Science, 33, 277–82.
Mookherjee, R. and Yu, Q. (1999a) Seasonalities in returns
Effect using latest data. This study shows that the
on the Chinese stock markets: the case of Shanghai
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be in the stock markets of China recently. Mookherjee, R. and Yu, Q. (1999b) An empirical analysis
of the equity markets in China, Review of Financial
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