DefinePK

Research Objective

To investigate the day of the month's effect on stock returns in the emerging markets of Pakistan, India, and China in both Pre and Post-COVID scenarios, and to identify the anomalous behavior of calendar anomalies in stock return patterns.

Methodology

The study utilized daily stock index data for Pakistan, India, and China from May 2017 to May 2022. E-views software was employed to conduct correlation and Ordinary Least Squares (OLS) regression analyses to examine the month effect anomaly. The data was divided into two regimes: Pre-COVID and Post-COVID periods.

Methodology Flowchart

                        graph TD
    A["Collect Daily Stock Index Data Pakistan, India, China"] --> B["Define Pre-COVID and Post-COVID Periods"];
    B --> C["Calculate Daily Returns"];
    C --> D["Apply Correlation Analysis"];
    C --> E["Apply OLS Regression for Calendar Anomaly"];
    D --> F["Analyze Market Correlations"];
    E --> G["Identify Month Effects and Anomalies"];
    F --> H["Interpret Results"];
    G --> H;
    H --> I["Formulate Conclusions and Implications"];                    

Discussion

The study found varying patterns of mean and variance in stock returns across different months and in both Pre and Post-COVID periods, indicating the prevalence of calendar anomalies. The correlation analysis revealed that Pakistan's stock market (KSE) behaved differently from India's (BSE) and China's (SSE). The findings suggest that while market efficiency is a dynamic subject, calendar anomalies persist even amidst economic turmoil and recovery. The COVID-19 pandemic significantly impacted market behavior, leading to shifts in return patterns and volatility.

Key Findings

In the Pre-COVID period, Pakistan had the highest returns in November and lowest in February, while India had highest in July and lowest in February. China saw highest returns in January and lowest in October. Volatility was highest in October for Pakistan and India, and February for China. Post-COVID, Pakistan and China experienced highest returns in September, while India saw highest in November. Lowest returns were in March for Pakistan and India, and December for China. Volatility was high in December (Pakistan), March (India), and February (China). The BSE and SSE markets showed a strong positive correlation, while both had a negative correlation with the KSE. The January anomaly was found in KSE (Pre-COVID) and SSE (both Pre and Post-COVID).

Conclusion

The study concludes that calendar anomalies, specifically the day-of-the-month effect, exist in the emerging markets of Pakistan, India, and China, and these patterns vary between the Pre and Post-COVID periods. The COVID-19 pandemic had a significant impact on investor responses and investment patterns in equity markets. The Indian equity market was noted to be under depression due to mismanagement of the pandemic and its financial impact.

Fact Check

1. Data Period: The study used daily data from May 2017 to May 2022, covering over 1529 observations.
2. Countries Studied: The research focused on three emerging markets: Pakistan, India, and China.
3. Methodology: OLS regression and correlation analysis were employed to examine calendar anomalies.

Mind Map