Calendar effects: Empirical evidence from the Vietnam stock markets

Abstract

The Efficient Market Hypothesis (EMH) deals with informational efficiency and strongly based on the idea that the stock market prices or returns are unpredictable and do not follows any regular pattern, so it is impossible to "beat the market."According to the EMH theory, security prices immediately and fully reflect all available relevant information. EMH also establishes a foundation of modern investment theory that essentially advocates the futility of information in the generation of abnormal returns in capital markets over a period. However, the existence of anomalies challenges the notion of efficiency in stock markets. Calendar effects break the weak form of efficiency, highlighting the role of past patterns and seasonality in estimating future prices. The present research aims to study the efficiency in Vietnam stock markets. Using daily and monthly returns of VnIndex data from its inception in March 2002 to December 2018, we employ dummy variable multiple linear regression techniques to assess the existence of calendar effects in Vietnam stock markets. To correct for volatility clustering and ARCH effect present in the daily returns, the results are modeled using the EGARCH estimation methodology. The study reveals the existence of calendar effects in Vietnam in the form of a significant Friday Effect as well as a significant "January effect, "thereby suggesting that the Vietnam stock markets do not show informational efficiency even in the weak form, a trait observable in emerging markets.