Seasonality at the Karachi Stock Exchange

Abstract

Generally, calendar effects takes place when the returns of financial assets exhibit particular characteristics over specific days, weeks, months or even years. This research report uses dummy variables with multiple linear regressions to identify the existence of various effects. Which include month-of-the year effect or January effect, turn-of-theyear effect, summer effect, month-of-the quarter effect, week-of-the month effect, semi month effect, day-of-the-week effect or weekend effect, Monday effect, holiday effect, and Ramadhan effect. The study was done on the Karachi Stock Exchange using the KSE-100 Index. The study concluded that several seasonal effects do exist in the KSE. Some of the effects that were found included day 3 as the day-of-the-week effect; January, February, May indicate month-of-the-year effects; weeks 3, 5, 7, 21 and 22 show week-of-theyear effect and Ramadhan effect. These effects indicate that the returns are significantly higher in these periods/seasons. The implications from the existence of these effects are the opportunity of making excessive returns in relation to the risk taken. There is also an indication of Weak or Semi strong form of Efficient Market Hypothesis for the KSE. While this study has provided additional insights into the behavior of stock returns in emerging markets, stock returns seasonality is still not fully understood.