This paper explores the presence of the turn – of – the – month effect on Bucharest Stock Exchange. We employ daily values from 2002 to 2011 of the two important indices of the Romanian capital market: BET – C and RAQ – C, composed on the stock prices of some of the biggest Romanian companies and RAQ – C, which includes the stock prices of smaller firms. We find evidences of the turn – of – the – month effect only for the BET – C evolution.Calendar anomalies, Turn – of – the - month effect, Romanian capital markets, Seasonality, Efficient Market Hypothesis

Dumitriu, Ramona

Stefanescu, Razvan

English

Research Papers in Economics

TURN - OF - THE - MONTH EFFECT ON 
THE BUCHAREST STOCK EXCHANGE￿ ￿ ￿ ￿
 
STEFANESCU Razvan; 
University “Dunarea de Jos” Galati;  
rzvn_stefanescu@yahoo.com 
 
DUMITRIU Ramona; 
University “Dunarea de Jos” Galati;  
rdumitriu@ugal.ro 
 
 
Abstract 
This  paper  explores  the  presence  of  the 
turn – of – the – month effect on Bucharest 
Stock  Exchange.  We  employ  daily  values 
from  2002  to  2011  of  the  two  important 
indices  of  the  Romanian  capital  market: 
BET  – C and RAQ  – C, composed on the 
stock  prices  of  some  of  the  biggest 
Romanian companies and RAQ – C, which 
includes the stock prices of smaller firms. 
We find evidences of the turn – of – the – 
month  effect  only  for  the  BET  –  C 
evolution.  
 
Key words: Calendar anomalies, Turn  – 
of  – the - month effect, Romanian capital 
markets,  Seasonality,  Efficient  Market 
Hypothesis 
 
JEL CLASSIFICATION: G02, G10 
 
1. Introduction 
 
The  presence  of  the  Calendar  anomalies 
on the financial markets was used as an 
argument against Fama’s (1970) Efficient 
Market Hypothesis (EMH). Such Calendar 
anomalies  include  the  turn  –  of  –  the  – 
month  effect,  materialized  in  the 
significant  differences  between  the  stock 
returns  from  the  so  called  TOM  period, 
which includes the first trading days of a 
month  plus  the  last  trading  days  of  the 
precedent  month  and  the  stock  returns 
from the so called rest  – of  – the month 
(ROM) period, which includes the days not 
belonging to the TOM period. 
￿
The study of TOM effects is important in 
the  investment  decision  making  and  in 
characterizing  the  financial  markets 
evolutions.￿ In  the  last  decades  many 
scientific  papers  found  evidences  of  the 
turn – of – the – month effect for various 
categories of the financial markets.  
 
In this paper we investigate the existence 
of  TOM  pattern  in  the  Bucharest  Stock 
Exchange (BSE). To our knowledge there 
was no other attempt to analyze this kind 
of  seasonality  on  the  Romanian  capital 
market. This situation could be explained 
by its recent history marked by significant 
changes. BSE was founded in 1882, but it 
was closed during the Communist regime. 
In 1995 BSE was reopened, but the effects 
on the East Asian Financial Crisis and the 
difficulties  of  transition  caused  a  drastic 
decline of the stock prices. 
￿
The Romania’s adhesion to the European 
Union stimulated the recovery of BSE, but 
the global crisis caused another decline of 
the stock prices.  
 
In  our  study  we  focus  on  two  main 
components  of  BSE:  BET  market  and 
RASDAQ  market.  On  BET  market  there 
are  listed  some  of  the  biggest  Romanian 
companies,  while  RASDAQ  contained 
rather  smaller  companies.  We  try  to 
identify  TOM  effects  by  employing 
regressions with dummy variables. 
 
The  rest  of  this  paper  is  organized  as 
follows.  The  second  part  approaches  the 
relevant  literature.  The  third  part 
describes  the  data  and  the  methodology 
used in this paper. The empirical results are presented in the fourth part and the 
fifth part concludes. 
￿
2. Literature review 
 
The TOM effects were highly approached 
in  the  specialized  literature  during  the 
last decades. Ariel (1987), Lakonishok and 
Smidt  (1988),  Pettengill  and  Jordan 
(1988),  Ogden  (1990)  and  Hensel  and 
Ziemba  (1996)  found  evidence  of  TOM 
patterns  on  the  New  York  Stock 
Exchange. Casby and Radner (1992), Jaffe 
and  Westerfield  (1985),  Complon  (1999), 
Boudreaux  (1995),  Agrawal  and  Tandon 
(1994), Kunkel et al (2003) identified such 
form  of  seasonality  in  other  countries. 
Instead, Lee et al (1990) and Wong et al 
(2006) found no evidence of the TOM effect 
in some Asian capital markets.  
 
There  is  no  unanimity  about  TOM  time 
period. Ariel (1987) used a period from -1 
to +9 (the last trading day of a month and 
nine trading days of the following month). 
Lakonishok  and  Smidt  (1988)  analyzed 
this  period  but  they  found  strong  TOM 
effect  only  from  -1  to  +3.  Hensel  and 
Ziemba  (1996)  identified  relevant  TOM 
effects  in  the  US  stock  market  between 
days -2 and +3, while Ziemba (1991) found 
relevant TOM effects in Japan from -5 to 
+2. 
 
Some  studies  approached  the  stock 
market  seasonality  in  case  of  the  small 
firms. Reinganum (1983) and Keim (1983) 
revealed  different  investors’  behavior 
which could lead to some particularities of 
the calendar effects. 
 
3. Theoretical Background  
 
We  employ  daily  closing  prices  of  two 
indices: BET-C for BET market and RAQ-
C  for  RASDAQ  market.  Our  sample  of 
data  is  provided  by  BSE  and  it  covers  a 
time period from January 4, 2002 to April 
15, 2011.  We compute the returns of the 
two indices using the equation: 
 
Rt = ln (Pt) – ln (Pt-1)                                 (1) 
 
where: 
- Rt is the return on the day t; 
-  Pt  is  the  closing  market  index  price  on 
the day t. 
 
We study the stationarity of the two time 
series  employing  the  Augmented  Dickey 
Fuller  (ADF)  test.  We  use  a  graphical 
representation  to  establish  the 
deterministic component of this test. The 
number  of  lags  is  chosen  based  on  the 
Akaike Information Criterion. 
 
We  investigate  TOM  effects,  using, 
initially, a -3 to +8 (the first eight trading 
days of a month and the last third trading 
days of the previous month) time period. 
We  try  to  find  the  relevant  seasonalities 
by performing the OLS regression: 
 
t i
i
i t D R e b + = ￿
- =
8
3
                             (2) 
 
where: 
- Di is a dummy variable taking the value 
one  for  the  i  trading  day  and  zero 
otherwise,  
-  •i  is  the  coefficient  of  dummy  variable 
(meaning the return for the i trading day) 
and •i is the error term.  
 
By  changing  the  trading  days  in 
successive  regressions  we  identify  the 
relevant  TOM  time  period.  We  compare 
then  the  returns  from  TOM  and  ROM 
time periods. Finally, we analyze the TOM 
effects for the two markets by running the 
OLS regression: 
 
Rt = • + • DTOM + •t                   (3) 
 
where: 
- • is the intercept (meaning the return for 
the ROM period),  
-  DTOM  is  a  dummy  variable  taking  the 
value one for the trading days from TOM 
time period and zero otherwise,  
-  •  is  a  coefficient  for  dummy  variable 
(meaning  the  differences  between  the 
mean TOM return and mean ROM return) 
and  
- •t is the error term.   
4. Empirical Results 
 
We  studied  the  stationarity  of  the 
variables.  Based  on  the  graphical 
representation  we  chose  a  constant  as 
deterministic  term  of  ADF  tests.  The 
results, presented in the Table 1, indicate 
the  stationarity  of  BET-C  and  RAQ-C 
returns.  
 
We perform the first regression for BET-C 
and RAQ-C returns (Table 2). For BET-C 
returns it resulted the most suitable TOM 
time  period  is  between  -1  to  +2  trading 
days.  The coefficients of the three dummy 
variables represent  the  mean returns for 
the  trading  days  from  TOM  time  period. 
The  largest  returns  occurred  in  the  first 
trading day of a month. In case of RAQ-C 
returns  we  didn’t  find  a  significant 
relationship for no one of the time periods 
studied. 
 
The smallest p-value of F-test occurred for 
TOM time period between -1 to +2 trading 
days.   
 
The descriptive statistics for the returns of 
BET-C  and  RAQ-C  revealed  that  TOM 
returns  are  greater  than  ROM  returns 
(Table  3).  These  returns  indicate  an 
apparent TOM pattern. 
 
We  perform  the  second  regression  for 
BET-C and RAQ-C returns (Table 4). The 
F-test indicates a significant relation only￿
in the case of BET-C returns. The positive 
value  of  coefficient  •  indicates  that  in 
general  TOM  returns  are  greater  than 
ROM returns. 
 
5. Conclusions  
 
In this paper we investigated the presence 
of  TOM  effects  in  the  two  main 
components  of  BSE:  BET  and  RASDAQ 
markets.  We  found  significant  evidences 
about such calendar anomalies only in the 
case of BET market.  
 
These  results  could  be  explained  by  the 
differences  between  BET  and  RASDAQ 
markets. On BET market where there are 
listed  some  of  the  biggest  Romanian 
companies,  the  foreign  investors  play  a 
major role. Moreover, BET market is very 
sensitive  to  the  evolutions  of  the  foreign 
capital  markets,  some  of  them  being 
affected by TOM effect. Instead, RASDAQ 
market, where there are listed many small 
companies,  is  not  very  attractive  for  the 
foreign investors and the influence of the 
foreign  capital  markets  is  lower  than  in 
the case of BET market. 
 
The research on the TOM effects at BSE 
could  be  continued  by  taking  into 
consideration  the  possible  interactions 
with  other  calendar  anomalies  such  the 
monthly and the daily seasonalities. 
 
References  
 
1. Agrawal, A., Tandon, K. (1994) Anomalies or 
illusions?, Evidence from stock markets in 
eighteen countries, Journal of International 
Money and Finance, 13, 83–106. 
2. Ariel, Robert A. (1987) A monthly effect in 
stock returns, Journal of Financial Economics 
18, 161-174. 
3. Boudreaux, D. (1995) The monthly effect in 
international stock markets: evidence and 
implications, Journal of Financial and 
Strategic Decisions, 8, 15–20. 
4. Cadsby, Charles B., Mitchell Ratner (1992) 
Turn-of-month and pre-holiday effects on stock 
returns: Some international evidence, Journal 
of Banking and Finance 16, 497-509. 
5. Compton, W. (2000) The Evolving Turn-Of-
The-Month Effect: Evidence from Pacific Rim 
Countries, University of North Carolina – 
Wilmington, Working Papers. 
6. Fama, E.F. (1970) Efficient capital markets: 
a review of theory and empirical work, Journal 
of Finance, No. 25, 383-41. 
7. Hensel, Chris R., Sick, G. A. and Ziemba, 
William T. (1994) The turn-of-the-month effect 
in the futures markets, 1982-1992, Review of 
Futures Markets, 8, 827-856. 
8. Jaffe, J., Westerfield, R. (1985a) Patterns in 
Japanese common stock returns: day of the 
week and turn of the year effects, Journal of 
Financial and Quantitative Analysis, 20, 261–
272. 
9. Keim, D. (1983) Size Related Anomalies and 
Stock Market Seasonality; Further Empirical 
Evidence, Journal of Financial Economics, 12: 
12-32. 10. Kunkel R. A., Compton W. S., Beyer S. 
(2003) The turn-of-the-month effect still lives: 
the international evidence, International 
Review of Financial Analysis 137, 1–15. 
11. Lakonishok, J., Smidt, S. (1988) Are 
Seasonal Anomalies Real? A Ninety Years 
Perspective, Review of Financial Studies, 1(4): 
403-425. 
12. Lee, I., Pettit, R., Swankowski, M. (1990) 
Daily return relationships among Asian stock 
markets, Journal of Business Finance and 
Accounting, 17, 265–284. 
13. Ogden, Joseph P. (1990) Turn-of-month 
evaluations of liquid profits and stock returns: 
A common explanation for the monthly and 
January effects, Journal of Finance 45(4), 1259-
1272. 
14. Pettengill, G., Jordan, B. (1988) A 
comprehensive examination of volume effects 
and seasonality in daily security returns, 
Journal of Financial Research, 11, 57–70. 
15. Reinganum, Marc R. (1983) The anomalous 
stock market behavior of small firms in 
January, Journal of Financial Economics, 12, 
89-104. 
16. Wong W.K., Agarwal A., Wong N.T. (Winter 
2006) The Disappearing Calendar Anomalies in 
the Singapore Stock Market, The Lahore 
Journal of Economics 11: 2, pp. 123-139. 
17. Ziemba, William, T. (1991) Japanese 
security market regularities: monthly, turn-of-
the-month and year, holiday and Golden Week 
effects, Japan and the World Economy 3, 119-
146. 
 APPENDIX 
 
Table 1 - Results of Augmented Dickey-Fuller Tests for the six time series 
 
Variable  Lagged 
Differences 
Test statistics  Asymptotic p-value 
Return of BET-C  21  -8.14112  2.007e-014 
Return of RAQ-C  18  -8.31225  5.948e-014 
 
 
Table 2 - Results of the first regression for BET-C and RAQ-C returns 
 
Return  •-1  •1  •2  F-test 
 
BET-C 
0.00261986 
(0.00156444) 
[1.6746] 
{0.09414} 
0.00642574 
(0.00156445) 
[4.1074] 
{0.00004} 
0.0044633 
(0.00155744) 
[2.8658] 
{0.00420} 
9.295922 
{4.14e-06} 
 
RAQ-C 
0.0024427 
(0.00116619) 
[2.0946] 
{0.03632} 
0.000282214 
(0.0011662) 
[0.2420] 
{0.80880} 
0.00110715 
(0.00116097) 
[0.9536] 
{0.34037} 
1.785113 
{0.147871} 
Notes: •-1, •1, •2 and F-test are for the following regression: Rt = •-1D(-1) + •1D(1) + •2D(2) + •t;  
            The standard errors are within the round brackets;  
             t – Values are within the squared brackets; p – values are within the braces. 
 
Table 3 - Descriptive Statistics for returns of BET-C and RAQ-C on TOM and ROM time periods 
 
BET-C  RAQ-C  Return 
TOM  ROM  TOM  ROM 
Mean  0.00450285  0.000251279  0.00127684  0.000153326 
Minimum  -0.0455560  -0.121184  -0.260412  -0.198265 
Maximum  0.0568535  0.108906  0.233651  0.0750852 
Std. Dev.  0.0153325  0.0166742  0.0208475  0.0101630 
Skewness  0.264020  -0.827565  -1.71751  -3.86881 
Ex. kurtosis  1.34884  8.36903  118.547  78.7454 
 
 
Table 4 - Results of the second regression for BET-C and RAQ-C returns 
 
Return  •  •  F-test 
 
BET-C 
0.000251279 
(0.000370441) 
[0.6783] 
{0.49763} 
0.00425157 
(0.000975261) 
[4.3594] 
{0.00001} 
19.00455 
{0.000014} 
 
RAQ-C 
0.000153326 
(0.000276077) 
[0.5554] 
{0.57869} 
0.00112352 
(0.000726828) 
[1.5458] 
{0.12229} 
2.389443 
{0.122294} 
       Notes: •, • and F-test are for the following regression: Rt = • + • DTOM + •t;  
                   The standard errors are within the round brackets;  
                    t – Values are within the squared brackets; p – values are within the braces. 

A comprehensive examination of volume effects and seasonality in daily security returns,

A monthly effect in stock returns,

Anomalies or illusions?, Evidence from stock markets in eighteen countries,

Are Seasonal Anomalies Real? A Ninety Years Perspective,

Daily return relationships among Asian stock markets,

Efficient capital markets: a review of theory and empirical work,

Japanese security market regularities: monthly, turn-ofthe-month and year, holiday and Golden Week effects,

Patterns in Japanese common stock returns: day of the week and turn of the year effects,

Size Related Anomalies and Stock Market Seasonality; Further Empirical Evidence,

The anomalous stock market behavior of small firms in January,

The Disappearing Calendar Anomalies in the Singapore Stock Market, The Lahore

The Evolving Turn-OfThe-Month Effect: Evidence from Pacific Rim Countries,

The monthly effect in international stock markets: evidence and implications,

The turn-of-the-month effect in the futures markets, 1982-1992, Review of Futures Markets,

Turn-of-month and pre-holiday effects on stock returns: Some international evidence,

Turn-of-month evaluations of liquid profits and stock returns: A common explanation for the monthly and January effects,

Turn - of - the - month effect on the Bucharest stock exchange

Turn - of - the - month effect on the Bucharest stock exchange

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics