A New Perspective on the Anomalies
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About this book
This study explores three types of month effects in the Dow Jones Industrial Average: (a) for a given period, if the mean of monthly percentage changes of each month was different from zero, (b) for a given period, if the mean of monthly percentage changes for a month was different from the means of all the other months, and (c) for a given period, if the variance of the monthly percentage changes for a month was different from the variances of all the other months. For our entire data set (May 1896 to December 2002) we find that the means of monthly percentage changes of only July, August, January and December were significantly greater than zero (months put in descending order).
But the means of none of these three months were significantly higher compared to the means of all the other months. With a mean percentage change of -1.25%, only September appears with significant negative returns. And this mean is significantly lower compared to the means of all the other months. In other words, for the entire data set, we have a negative September effect.
Month effect with respect to variance (variance of monthly percentage changes for a month being significantly different from all the other months) was found for January, February and December (lower variances), and April (higher variance). When we look at the first half of the twentieth century versus the second half, we see more pronounced month effects in the second half – considering all three types of effects we analyze. December exhibited all three types of effects in this period. When we sub-divide the last century into four 25-year periods, we find more pronounced month effects in the last quarter than in the previous three quarters.
Author: Shaid A.Hamid
Dr. Shahid Hamid is Professor of Finance and Chair of the Finance department in the College of Business at Florida International University. He also serves as the Director of the Laboratory for Insurance, Financial and Economic Research located in the International Hurricane Research Center at FIU, and is the Director of an entrepreneurial venture for FIU, and past Director of the MS in Finance program. He has conducted research on a wide variety of topics including hurricane loss modeling, homeowner insurance, international stock markets, corporate financial policies, commercial banking, interest rate risk, derivatives, financial crisis, portfolio performance, central bank policy, technological change, mergers and acquisitions, free trade agreements, and securities class action lawsuits.