The theoretical aspects of calendar effects and anomalies on the Ukrainian stock market and the empirical evidences of monthly returns and volatility of PFTS-index are examined. A strong evidence of a calendar effect i.e. December effect on Ukrainian PFTS exchange was found. It can be explained due to the cyclical character of some industries, cyclical shares, calendar character of exchange rate fluctuations and self-fulfilling prophecies of investors.Calendar effects; December effect; stock market anomalies; volatility and rate of return of PFTS-Index; self-fulfilling prophecies; cyclical shares; Календарні ефекти та аномалії фондового ринку; ефект Грудня; дохідність та волатильність індексу ПФТС; передбаченння, які самореалізуються; циклічні акції;

Petrushchak, Bohdan

English

Research Papers in Economics

  1 
The calendar regularity of earnings and volatility distribution on 
the Ukrainian stock market 
 
Bohdan M. Petrushchak  
4
th year student at Ivan Franko National University of L’viv 
Scientific supervisor:  
PhD (Theoretical Physics), Doctor of Sciences (Economics), Ostap. Z. Vatamaniuk 
 
Abstract 
 
The theoretical aspects of calendar effects and anomalies on the Ukrainian stock market and 
the empirical evidences of monthly returns and volatility of PFTS-index are examined. A strong 
evidence of a calendar effect i.e. December effect on Ukrainian PFTS exchange was found. It can 
be explained due to the cyclical character of some industries, cyclical shares, calendar character of 
exchange rate fluctuations and self-fulfilling prophecies of investors. 
 
 
The development of real sector of economy nowadays depends to a considerable 
extent  on  the  level  of  financial  system’s  development,  whose  effective  operation 
implies its sustainable performance and optimal structure of its components. Stock 
market as a mechanism of reallocation of savings mainly from households to those 
institutions and companies who need more funds for financing investment projects 
or/and current operations is an important part of financial system and a base for better 
functioning of real economy.  
An important aspect of financial management in context of managing financial 
investment through the mechanism of stock market is not only the construction of 
optimal diversified portfolio of securities in respect of theirs levels of risk and return 
in order to minimize idiosyncratic risks, but also the determination of the optimal 
investment time horizon
1. Besides that it is a crucial decision to select entry and exit 
points for equity investments.  
The hypothesis of uselessness of historical data for prediction of the future stock 
movements  is  based  on  theoretical  assumptions  of  efficient-market  hypothesis  in 
particular on its assumption of random walk which states that stock market prices 
cannot  be  predicted  because  they  depend  to  a  considerable  degree  on  investors’ 
rational expectations which due to stock market efficiency are determined by stock 
prices  reflecting  all  available  and  relevant  information
2.  The  results  of  many 
empirical studies on historical stock market prices performance starting in the 1970s 
                                                 
1 Hubbard R.G. Money, the Financial System, and the Economy. – Addison-Wesley Publishing Company, 4
th ed. 
– 2002. – P.106. 
2 Bestmann U. Finanzlexikon. – München: Vahlen, 1989. – 2., völlig neubearb. und erw. Aufl. – S.228.   2 
show that there are some calendar regularities of stock market earnings and volatility. 
Stated differently, there is strong evidence of calendar effects i.e. long term empirical 
regularities  of  stock  prices’  return  and  volatility  over  some  period  of  time
3.  The 
results of these studies confirmed the hypothesis of technical analysts who seek to 
identify  price  patterns  and  market  trends  on  financial  markets.  The possibility  of 
obtaining an additional profit depends on the identification of these effects and their 
incorporation into the investment strategy. Otherwise stated, the profitability of the 
shares  has  seasonal  or  cyclical  character  with  well-defined  calendar  regularity  of 
return  distribution,  which  allows  increasing  the  adequacy  of  forecasting  the 
movement of stock indices.  
According to this line of reasoning at least some of the calendar effects are of 
practical importance for the financial management i.e. “January effect”, “day-of-the-
week effect”, “Halloween effect” etc. The scientific literature describes various others 
anomalies on the stock market i.e. weather anomalies, lunar phase effect on stock 
markets,  political  effects  and  sports  anomalies  etc.,  but  the  subject  of  our 
investigation are the monthly regularities of stock earnings.  
January effect refers to regularity which is based on the observation, that the 
average  returns  in  January  are  much  higher  than  returns  during  other  months. 
Empirical studies on the base of historical data of New York Stock Exchange proved 
that the average rates of return on the common stocks in January especially those of 
smaller-capitalization  companies  are  about  three  percentage  points  higher  than 
returns during other months.  
In order to analyze the calendar regularities of the monthly return and volatility 
distribution  on  the  Ukrainian  stock  market  we  compared  their  arithmetic  means 
during given month, considering data for the period 2002-2010, using the percentage 
increase or decrease of stock index over time from its starting value as a measure of 
rate of return and its standard deviation as a measure of volatility. 
As  Figure  1  confirms  there  is  a  strong  evidence  of  a  calendar  effect  i.e. 
December  effect  on  the  Ukrainian  PFTS  exchange.  The  profitability  of  PFTS 
                                                 
3 Steiner M., Bruns Ch. Wertpapiermanagement. – 4., überarbeitete und ergänzte Aufl. – Stuttgart: Schäfer-
Poeschel, 1995. – S.41.   3 
-2,00
0,00
2,00
4,00
6,00
8,00
10,00
12,00
R
a
t
e
 
o
f
 
r
e
t
u
r
n
,
 
%
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
18,00
20,00
V
o
l
a
t
i
l
i
t
y
Rate of return 4,37 4,73 6,43 8,17 1,96 0,82 0,61 -0,32 -0,38 0,30 3,54 11,13
Volatility 9,89 14,13 13,50 17,15 11,48 9,18 9,08 7,67 11,46 11,91 8,77 15,24
January February  March April May June July August September October November December
exchange grows gradually during the January-April, than falls fluctuating around the 
trend level with rapid increase starting from October until December, reaching its 
maximal value 11.3 percent. As depicted visually in Figure 1 the same trend though 
less  clear  is  seen  for  volatility  performance  over  the  year.  The  following  graph 
demonstrates  an  extremely  strong  correlation  between  the  two  variables;  the 
correlation coefficient takes values 0.76 which indicates a strong positive correlation. 
  
 
 
 
 
 
 
 
 
 
 
 
 
Figure 1. Average rate of return and volatility of PFTS-Index  
(Source: PFTS, own calculations) 
 
The reasons for this trend are numerous, but the most important among them are 
probably the cyclical character of some industries and respectively cyclical character 
of  their  profit  distribution;  the  phenomenon  of  cyclical  shares  i.e.  shares  which 
performance depends on the state of the national economy or on the profit fluctuation 
due  to  bad  conjuncture,  adverse  exchange  movements  or  unfavorable  weather 
conditions
4; self-fulfilling prophecies of investors i.e. predictions that causes itself to 
become true due to investors’ belief, experience and their analysis of historical data 
on realized rates of return during the former periods; calendar character of exchange 
rate fluctuations determined the demand of foreign investors for shares which are 
traded  on  the  Ukrainian  stock  market  (the  mechanism  of  direct  influence). 
Companies’ payment schedule for loans denominated in foreign currencies exerts an 
indirect  impact  on  the  dynamics  of  the  stock  market  performance;  self-fulfilling 
prophecies  of  investors  i.e.  predictions  that  causes  itself  to  become  true  due  to 
investors’ belief, experience and their analysis of historical data on realized rates of 
return during the former periods.  
                                                 
4 Merk G. Begriffserläuterungen aus der Finanzwelt. – S.20. // www.uni-siegen.de.   4 
The long-debated among economists question of usefulness of historical data for 
prediction of the future stock movements is still open but many contemporary studies 
confirms that there is a strong empirical evidence of calendar regularities of shares’ 
earning  and  volatility  distribution  over  some  period  of  times  and  this  evidence 
however is contrary to the theoretical assumptions of efficient-market hypothesis. We 
think  that  the  historical  information  plays  an  important  role  in  determination  of 
investors’  rational  expectations  that  is  why  it  is  worth  to  analyze  it  along  with 
cyclical character of some industries, cyclical shares, calendar character of exchange 
rate  fluctuation  and  self-fulfilling  prophecies  of  investors  by  comparing  an 
investment alternatives. 
 
References: 
1. Hubbard R.G. Money, the Financial System, and the Economy. – Addison-
Wesley Publishing Company, 4
th ed. – 2002. – P.640. 
2. Bestmann U. Finanzlexikon. – München: Vahlen, 1989. – 2., völlig neubearb. 
und erw. Aufl. – S.315. 
3.  Merk  G.  Begriffserläuterungen  aus  der  Finanzwelt.  –  S.945.  //  www.uni-
siegen.de. 
4.  Steiner  M.,  Bruns  Ch.  Wertpapiermanagement.  –  4.,  überarbeitete  und 
ergänzte Aufl. – Stuttgart: Schäfer-Poeschel, 1995. – S.510. 
 
Published in: Proceedings of the 9th International Scientific Conference of 
Students and Young Scientists “Shevchenkivska Vesna 2011”. – 2011. – Kyiv: Taras 
Shevchenko National University of Kyiv. – Pages: 280–282. 
 
©Petrushchak Bohdan 

The calendar regularity of earnings and volatility distribution on the Ukrainian stock market

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics