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Calendar Anomalies, Market Regimes, and the Adaptive Market Hypothesis in African Stock Markets

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A. Obalade A., Muzindutsi P.-F.

Central European Management Journal

2019

vol. 27(4)

71-94

Findings: We found that (i) all the markets except for the Johannesburg Stock Exchange (JSE) have a higher tendency to be in bearish state than bullish state, (ii) month-of-the-year and intra-month effects appear in one regime and disappear in another regime, and (iii) the behavior of calendar Methodology: We applied two-stage Markov switching models (MSMs) instead of the conventional single state regression model. The sample period includes the daily index return of Nigerian, South African, Mauritian, Moroccan, and Tunisian stock exchanges from January 1998 to February 2018. Purpose: This paper examines the changing behavior of two calendar anomalies in African stock returns – the month-of-the-year and the intra-month effects – and their implications for the adaptive market hypothesis (AMH). anomalies is affected by market conditions and conforms to AMH rather than the efficient market hypothesis (EMH). Practical Implications: We present that (i) calendar anomaly is a characteristic that changes under different regimes or market conditions in African stock markets, (ii) active investment management may yield profits for market participants, depending on the market conditions and the anomaly in question, and (iii) the right approach would be for investors to consider each market with its own peculiarity even when they are in the same continent. Originality/Value: The sensitivity of the month-of-the-year and the intra-month effects to market conditions has not been documented in African stock markets, especially with the use of regime-switching models.

The Adaptive Market Hypothesis and the Day‑of‑the‑Week Effect in African Stock Markets: the Markov Switching Model

51%

Obalade A. A., Muzindutsi P. F.

Comparative Economic Research. Central and Eastern Europe

2019

vol. 22

issue 3

145-162

W oparciu o hipotezę rynku adaptacyjnego, w niniejszym opracowaniu zbadano, w jaki sposób efekt dnia tygodnia działa w fazie bessy i hossy na afrykańskich rynkach akcji oraz określono prawdopodobieństwo bycia w fazie bessy i hossy na każdym z tych rynków. Jako technikę analityczną przyjęto model przełącznikowy Markowa. Wyniki pokazują, że na wszystkich rynkach efekt dnia tygodnia pojawia się w jednej fazie i znika w drugiej, zgodnie z hipotezą rynku adaptacyjnego. Wreszcie, wszystkie rynki, z wyjątkiem giełdy w Johannesburgu, mają wyższą tendencję do bycia w fazie bessy niż hossy. Nasze ustalenia pokazują, że aktywne zarządzanie inwestycjami może przynosić zyski inwestorom inwestującym na większości rynków afrykańskich w fazie bessy.

In line with the Adaptive Market Hypothesis (AMH), the objective of this study is to investigate how the day‑of‑the‑week (DOW) effect behaves under different bull and bear market conditions in African stock markets, and to examine the likelihood of being in a bull or bear regime for each market. A Markov Switching Model (MSM) was employed as the analytical technique. The results show that the DOW effect appears in one regime and disappears in another, in all markets, as rooted in the AMH. Lastly, all markets, except the Johannesburg Stock Exchange have a higher tendency to be in a bearish state than a bullish one. Our findings show that active investment management may yield profits for investors investing in most African markets during bearish conditions.

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1 Central European Management Journal

1 Comparative Economic Research. Central and Eastern Europe

1 A. Obalade A.

1 Muzindutsi P. F.

1 Muzindutsi P.-F.

1 Obalade A. A.

1 2020

1 2019

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Calendar Anomalies, Market Regimes, and the Adaptive Market Hypothesis in African Stock Markets

The Adaptive Market Hypothesis and the Day‑of‑the‑Week Effect in African Stock Markets: the Markov Switching Model