Testing Daily Seasonality Using Value Premium Portfolios Returns: The Case of Pakistan

Abstract

Calendar anomalies are a well-documented phenomena in financial markets. The current study scrutinized calendar anomalies in the context of the local market by analyzing the Pakistan stock exchange. The data from the listed companies of PSX have been considered to test for seasonality in value premium portfolios using OLS regression, general GARCH (1,1), TGARCH, GJR-GARCH, PGARCH, and EGARCH models. The findings suggest that return seasonality among different value premium portfolios explains the economically and statistically significant magnitude of small firm effect. The current research also analyzed average stock returns with cross-sectional variation. It confirmed the relationship of size with daily seasonality. Furthermore, it also determined that a weak form of efficiency exists in the Pakistani stock market. Thus, the findings indicate that the investors are able to earn abnormal returns on their investments with the help of timing strategies.