Journal of Investment Strategies

Risk.net

Trading strategies and weekly anomalies in the stock market: Mexico, Indonesia, Nigeria and Turkey

Ruchika Gahlot

  • The result of the parametric and nonparametric tests shows weekly anomalies in the stock markets of Nigeria and Turkey, which defeats the basic premises of the efficient market hypothesis.
  • EGARCH-M also reports negative returns and the highest volatility on Monday, while it reports positive returns and the lowest volatility in Nigeria’s stock market.
  • A run test also confirms weak-form inefficiency in the stock market in Nigeria.
  • The EGARCH-M model shows that returns of the S&P 500 are significantly related to returns of the BMV IPC Stock index of Mexico, which is evidence of strong trade relations between Mexico and the United States.
  • It also reports the presence of asymmetric effects of news in all stock markets except for Nigeria, which implies that bad news causes greater volatility than good news.

This paper explores the day-of-the-week impact and efficiency of the stock markets in Mexico, Indonesia, Nigeria and Turkey by using closing prices of a major index from each stock market. Parametric models (the Levene, Welch and Brown–Forsythe tests), nonparametric models (the Kruskal–Wallis and Bartlett tests) and econometric models (exponential general autoregressive conditional heteroscedastic mean (EGARCH-M)) are used to test the presence of the day-of-the-week effect. The results of the parametric and nonparametric tests show weekly anomalies in the stock market of Nigeria and Turkey. A run test also confirms weak-form inefficiency in the stock market of Nigeria. The EGARCH-M model reports negative returns and the highest volatility on Monday in Nigeria’s stock market. This paper will help traders to create trading strategies, especially for trading in these indexes, as the returns will vary following the presence of the day-of-the-week effect.

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