||Is there January Effect? Examining Market Efficiency in Latvian Stock Market
||Is there January Effect? Examining Market Efficiency in Latvian Stock Market
||Institute of International Management (IIMBA--Master)
NASDAQ OMX Riga
January effect implies that stock returns in January are significantly higher comparing to the other months of the year. Such seasonal pattern has been reported in various stock exchanges around the globe. Studies have been carried out mostly in developed markets and recently market efficiency by monthly seasonal effect has been challenged in emerging stock markets.
This study investigates monthly seasonal return patterns in NASDAQ OMX Riga of Latvia for the period from 2000 to 2011. The results confirm seasonality existence in Latvian capital market, however January effect is not observed. Instead, April effect is found which reports higher average returns in April comparing to other months.
The results of the study bring into question efficient market hypothesis and suggest that investors can develop trading strategy to obtain higher returns. However, the small size and poor liquidity of the market could have influenced the findings in this study.
TABLE OF CONTENTS III
LIST OF TABLES V
LIST OF FIGURES VI
CHAPTER ONE INTRODUCTION 1
1.1 Research Background and Motivation. 1
1.2 Research Objectives and Contribution. 3
1.3 Research Structure. 6
CHAPTER TWO LITERATURE REVIEW 7
2.1 Financial System in Latvia. 7
2.1.1 Capital Market in Latvia. 8
2.1.2 NASDAQ OMX Riga. 10
2.2 Market Efficiency. 18
2.3 January Effect. 19
2.4 Tax-Loss Selling Hypothesis. 24
2.5 Other Evidence in January Effect. 27
2.5.1 Window Dressing or Portfolio Rebalancing Hypothesis. 27
2.5.2 Risk-Return Relationship and Information Uncertainty. 28
2.5.3 Payment System Standardization. 29
2.5.4 Intergenerational Transfers. 30
2.5.5 Perspective of Behavioral Finance. 30
2.6 January Effect Studies in Emerging or Transition Economies. 31
CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY 34
3.1 Data Source and Sample. 34
3.2 Methodology. 34
3.3 Variable Description. 37
CHAPTER FOUR RESEARCH RESULTS 40
4.1 Test for Monthly Seasonality and January Effect. 44
4.2 Small Capitalization vs. Large Capitalization Firm January Effect. 47
4.3 Trading Volume and Turnover in the Turn of the Year. 49
4.4 April Effect? 51
CHAPTER FIVE CONCLUSION AND SUGGESTIONS 54
5.1 Research Conclusions and Discussion. 54
5.2 Research Implication. 59
5.3 Research Limitation. 60
5.4 Future Research and Suggestions. 61
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