Investigating Seasonal Behaviour in the Monthly Stock Returns: Evidence from BSE Sensex of India



Abstract: Increasing globalization of the financial markets and the flawless nature of cross border investment flows have sharpened interest in emerging markets. Due to the structural changes, globalization of the capital markets, and internationalization of the world economy, growing attention is being given to emerging capital market. There are reports and studies both in India and abroad on the seasonality of the Sensex monthly returns. The objective of the study is to investigate the existence of seasonality in stock returns in Bombay Stock Exchange (BSE) sensex.We use monthly closing share price data of the Bombay Stock Exchange’s share price index from January,1991 to December,2010for this purpose. We use a combined regression –time series model with dummy variables for months to test the existence of seasonality in stock returns. The results of the study provide evidence for a month-of-the-year effect in Indian stock markets confirming the seasonal effect in stock returns in India and also support  the ‘ tax-loss selling’ hypothesis and ‘January effect’. These findings have important implications for the financial managers, financial analysts and investors. The understanding of seasonality would help them to develop appropriate investment strategies.


Key words: Seasonality, market efficiency, efficient market hypothesis, tax-loss selling hypothesis, monthly stock returns, stationarity, BSE.

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