A STUDY OF THE MONTH OF THE YEAR EFFECT IN NIFTY50 AND BANK NIFTY
DOI:
https://doi.org/10.62737/scbgfq17Keywords:
Month-of-the-Year Effect; Calendar Anomalies; Indian Stock Market; NIFTY 50; Bank NIFTY; Dummy Variable Regression; Market EfficiencyAbstract
The Efficient Market Hypothesis (EMH) asserts that stock prices incorporate all available information, thus negating the potential for systematic abnormal returns. Nevertheless, extensive empirical studies have revealed the presence of calendar anomalies that contest this assertion, particularly the month-of-the-year effect, which indicates that stock returns display systematic seasonal trends. This research examines the existence and statistical relevance of the month-of-the-year effect within the Indian stock market, utilizing two primary indices, NIFTY 50 and Bank NIFTY.
The research utilizes dummy variable regression analysis on monthly index returns to determine whether returns in particular months significantly differ from a reference month. Before conducting the regression analysis, the stationarity of returns is confirmed through the Augmented Dickey–Fuller (ADF) test. The empirical findings indicate limited evidence of monthly seasonality in the Indian equity markets. January is identified as the sole month demonstrating a statistically significant negative return for both indices, signifying a persistent January effect. Conversely, returns in all other months do not exhibit statistically significant variations, indicating a lack of widespread seasonal anomalies.
The persistence of the January effect across both the broad market index and the banking sector index underscores the robustness of this anomaly. However, the absence of significant effects in other months suggests a high level of market efficiency within the Indian stock market. These results imply that while isolated calendar anomalies persist, the potential for leveraging month-based trading strategies is constrained. This study adds to the body of literature on stock market anomalies in emerging markets and provides insights into the evolving efficiency of Indian capital markets.
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