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Turn-of-the-month effect in three Turn-of-the-

month effect
major emerging countries
Geeta Singh, Kaushik Bhattacharjee and Satish Kumar
IBS Hyderabad (ICFAI Foundation for Higher Education), Hyderabad, India

Abstract
Received 14 January 2020
Purpose – The purpose if this paper is to examine the turn-of-the-month effect in the equity market of three Revised 28 January 2020
major emerging countries – Brazil, India and China – from January 2000 to December 2017. Accepted 28 January 2020
Design/methodology/approach – Ordinary least square regression analysis is used to examine the
presence of the turn-of-the-month effect and to test the efficiency of the emerging stock markets. The
characteristics of the returns during the turn-of-the-month days are compared with that of the non-turn-of-
the-month trading days.
Findings – The average returns during turn-of-the-month days for all the considered emerging market indices
are significantly higher than the non-turn-of-the-month days for the full sample. For the subsample analysis,
the average returns for Brazil and India for pre-GFC period are higher on the turn-of-the-month days than on
the non-turn-of-the-month days. However, the effect disappears in China during the GFC period. During the
crisis period, the results show that the turn-of-the-month effect disappears in Brazil and India, whereas for
China, the effect is significant. For the post-GFC period, the-turn-of-the-month effect reappears for all the
countries.
Practical implications – The results have important implications for both traders and investors. The
authors’ results indicate that the market participants can time the stock markets of these countries by taking
long positions especially during the times when the turn-of-the-month effect is highly significant.
Originality/value – To the best of the authors’ knowledge, this paper is the first to study the turn-of-the-
month effect, in the key emerging countries such as Brazil, China and India. Second, the authors divide the
sample into three subperiods based on the 2008 GFC such as pre-GFC, GFC and post-GFC to understand
the dynamic behavior of turn-of-the-month effect over time. Most importantly, the authors control for the day-
of-the-week effect while examining the turn-of-the-month effect.
Keywords Turn-of-the-month effect, Adaptive market hypothesis, Market efficiency
Paper type Research paper

1. Introduction
Market efficiency has been a long studied area in finance. It has become a fundamental that
calendar anomalies help us know about the market efficiency, especially in capital markets.
Calendar anomalies are changes in security prices in stock market following certain patterns
that occur at a regular interval or at a specific time in a calendar year. Thus, these seasonal
anomalies may open a window for market participants to beat the market by examining these
patterns. Various studies have been done in countries across the world for different time
periods to study calendar anomalies to derive some conclusion about their markets’
efficiency. For instance, Jacobs and Levy (1988) study various calendar anomalies, associated
with abnormal equity returns on the turn of the year, week, month and preholiday and even
time of the day. Cadsby and Ratner (1992) examine the preholiday and turn-of-the-month
(TOM) effect for five countries including Canada and the United Kingdom. Kunkel et al. (2003)
show the evidence of significantly higher returns during TOM days compared to non-TOM
days in the stock markets of 16 countries across Europe, Far East, North America and Latin
America. Kumar (2016) examines the day-of-the-week (DOW) effect, January effect and TOM
effect across a set of developed, advanced and emerging currencies and concludes that these
calendar anomalies are more significant across emerging currencies compared to advanced
and developed currencies.
Managerial Finance
© Emerald Publishing Limited
0307-4358
JEL Classification — G12, G13, G14, G15 DOI 10.1108/MF-01-2020-0013
MF This paper focuses on the TOM effect, which states that daily stock returns on some
trading days of the month are different from other days of the month. The TOM effect is a
pricing anomaly noticed when a security is carried forward from one month to the next such
that last few days of the previous month and first few days of the subsequent month display
abnormal returns. To test the presence or otherwise of the TOM effect, we segment a month’s
trading days by analyzing if the returns on the TOM days are higher than the non-TOM days.
In particular, we investigate whether the TOM effect is persistent in the top three emerging
world economies: Brazil, China and India from January 2000 to December 2017. We further
perform a subsample analysis to investigate the behavior of calendar anomalies over time.
The choice of the subsample is based upon the 2008 global financial crisis (GFC), such that
three subsamples are pre-GFC, GFC and post-GFC.
One of the explanations for the TOM effect is derived from Ogden (1990), who argues that
for many entities, the turn of each month is a typical payment for accumulated wages,
dividends and so on. These entities, therefore, prefer to invest in securities maturing at the
end of each month to ensure sufficient funds to meet TOM liabilities, resulting in TOM effect.
Ziemba (1991) lends more support to Ogden (1990) by showing that the TOM effect emerges
almost a week early in Japan because majority of Japanese wages/salaries are paid on around
25th of every month. Booth et al. (2001) document that the higher liquidity around the TOM
days is responsible for higher returns during the TOM days compared to the non-TOM days.
Nikkinen et al. (2007) show the evidence of the TOM effect in the SP 100 stocks from January
1995 to December 2003. They argue that the TOM effect can be explained through
macroeconomic news announcements, which come to the market steadily at the end of each
month. They further find that the TOM effect disappears when these macroeconomic
announcements are controlled.
What motivates our paper is the fact that the calendar anomalies such as TOM effect
violate the very assumption of the efficient market hypothesis (EMH) – no strategy can help
beat the market – leading to earning abnormal profits. EMH argues that all the information
has already been incorporated in the prices and no calendar anomaly should persist.
However, various studies have shown that the markets are not efficient due to various
underlying frictions. One such strand of literature shows that stock returns are significantly
higher or lower depending upon day of the month (see, Kumar, 2015, 2016; Sharma and
Narayan, 2014). In fact, Campbell et al. (1997) argue for relative efficiency, which tests market
efficiency from all-or-nothing condition to varying over time. Moreover, their argument finds
support in Urquhart and McGroarty (2014), who show that the market efficiency is not an all-
or-nothing condition, rather it varies over time because calendar anomalies would induce new
profit-making opportunities continually. Such time-varying behavior of market efficiency
supports the adaptive market hypothesis (AMH), originally proposed by Lo (2004). Lo (2004)
argues that EMH and market inefficiencies may coexist in a consistent way.
The basic tenet of the AMH is that investors always intend to capitalize on their self-
interests; however, they are prone to making mistakes (Urquhart and McGroarty, 2014). They
eventually learn from their mistakes and adapt, which in turn gives rise to competition and
innovations in the markets. The AMH indicates that the complicated market dynamics such
as trends, fears, bubbles and collapses are repetitively seen in the markets. An important
implication of AMH is that trading strategies will do well or fail based on given
circumstances, they may rather disappear for a time and again arrive successfully during
conducive conditions. Overall, the market efficiency is not an all-or-nothing condition; it
fluctuates with time. Since Lo (2004), AMH has received increased attention among
academicians around the world (for instance, see, Lim, 2007; Kim et al., 2011; Urquhart and
Hudson, 2013; Hull and McGroarty, 2014; Ghazani and Araghi, 2014).
We contribute to the literature in several ways. First, to the best of our knowledge, this
paper is the first to study the TOM effect, in the key emerging countries such as Brazil, China
and India. Second, we divide the sample into three subperiods based on the 2008 GFC such as Turn-of-the-
pre-GFC, GFC and post-GFC to understand the dynamic behavior of TOM effect over time. month effect
Considering different classifications of the crisis period, we change the subsamples and show
that our results are robust across subsamples. The final and most important contribution of
our paper is that we control for the DOW effect while examining the TOM effect. DOW effect,
an anomaly in the stock markets, is characterized by higher returns on Fridays and lower
returns on Mondays. It is a natural phenomenon that the TOM effect could possibly be driven
because TOM days overlap with either Mondays or Fridays. If Mondays and Fridays are
overlapping around the TOM days, it becomes a tedious task to understand whether the
higher returns are due to the TOM effect or DOW effect. Therefore, to avoid this problem, we
have resorted to dropping the Mondays and Fridays falling during the TOM days and find
that our results for the TOM effect remain qualitatively similar for all countries and across
subsamples.
Our results indicate the evidence of significant TOM effect in all the three countries at
conventional levels of the significance for the full sample. The returns during TOM days are
significantly higher than those during non-TOM days. However, when we consider the
subsamples based on the GFC, we show strong evidence for the TOM effect in Brazil and
India, but not for China in the pre-GFC period. During GFC, the TOM effect disappears in
Brazil and India, whereas for China, the effect is significant. While post GFC, the average
returns in all the three countries for TOM days are significantly higher than the average
returns on the non-TOM days. These results are consistent with the AMH, which states that
each market adapts differently to certain market conditions where the TOM effect varies
during different market conditions. Our results have practical implications for market
participants in that they can time the stock markets of these countries by taking long
positions especially during the times when the TOM effect is highly significant. Our results
are robust if we change the GFC time lines as considered in many studies. Our results are also
insensitive to controlling for the DOW effect.
The rest of the paper is organized as follows: Section 2 provides the literature review;
Section 3 explains the data; Sections 4 describes the research methodology used; Section 5
presents the results; and finally Section 6 concludes with implications of the study.

2. Literature review
Calendar anomalies have been a subject of research for decades. These anomalies include
turn of the week, January effect, holiday effect, DOW, among others. Condoyanni et al. (1987)
show that the DOW effect is prevailing in the capital markets around the world. Ariel (1990,
1987) investigates that stock returns on an average are higher for the last trading day of the
month and on a day before a holiday. Various studies (see, Cross, 1973; French, 1980; Gibbons
and Hess, 1981) show that Monday returns, on average, are lower than returns on other days
of the week. While others have reported that there is seasonality even in the intraday returns
– the average daily returns at the beginning and end of a trading day are higher than other
times of the day (Harris, 1986).
Another most studied calendar anomaly is the January effect. Arsad and Coutts (1997)
report that the calendar effects exist in the Financial Times Industrial Ordinary Shares Index
of London, over a 60-year period from 1935 to 1994. They conclude that beating the market is
difficult, consistent with the idea of market efficiency, and therefore, no strategy will
consistently yield abnormal returns. Fama (1991) states that the seasonality of stock returns
can be explained in terms of market microstructure. It means that investor trading patterns
are seasonal in nature, which leads to calendar anomalies. Though these anomalies are
present in many markets across the globe, Connolly (1989) reports that after 1974 there is a
weaker evidence for the Monday seasonal in NYSE returns. Further, it was found that
MF Monday IPOs have higher mean initial returns than those issued on other days (Jones and
Ligon, 2009).
There are diverse evidences for the TOM effect in different countries during different time
period. Lakonishok and Smidt (1988) study 90 years of daily data on the Dow Jones Industrial
Average to test for the existence of persistent seasonal patterns. They report that the TOM
four-day returns are significantly more than the average total monthly returns. Similarly,
Linn and Lockwood (1988) and Liano and Kelly (1995) provide evidence that the returns in the
TOM trading days are significantly lower compared to the non-TOM trading days. Ogden
(1990) studies the stock index returns in the USA for 1969–1986 to test if the standardization
of payments at the turn of each calendar month generally induces a surge in stock returns at
the turn of each calendar month. He confirms the existence of the TOM effect in the US
market. Further, Cadsby (1992) finds that some of the calendar effects (particularly January
effect) are related to the measured risk–return relationship. He argues that risk is
compensated at the TOM but not during the rest of the year, similar to the compensation
rewarded late during the week but not throughout the week. Kunkel et al. (2003) examine
stock market indices of 19 countries for the TOM pattern and find that the four-day TOM
period, on an average, accounts for about 87% of the monthly return in the stock markets of
15 countries where the TOM effect is present.
Cadsby and Ratner (1992) find positive TOM returns in Canada, the United Kingdom,
Australia, Switzerland and West Germany. They report that increased liquidity has resulted
in higher returns at the TOM than non-TOM days. Martikainen et al. (1995) find significant
TOM effect in various markets of Finland: stock index futures, options and cash markets. The
effect is strong in the last trading week of the month. McConnell and Xu (2008) present strong
evidence for the TOM effect in the US equities. They report that during 1926–2005, on
average, investors received no reward for bearing market risk but only at turns of the month.
Further, the results are not confined to the US markets only, out of 35 countries, the effect
exists in 31 countries. Depenchuk et al. (2010) find a presence of the TOM effect in the
Ukrainian stock market with 0.35% as the mean daily TOM return against 0.24% for the non-
TOM days. McGuinness and Harris (2011) investigate the TOM effect in three Chinese
markets: Hong Kong, Shanghai and Shenzhen, and find that the effect is more pronounced in
Hong Kong than other two markets because short-sales turnover shrinks near the end of the
calendar month.
The impact of the TOM on the returns and return volatility of 560 firms listed on NYSE is
also studied, which reveals that effect depends on the sectoral location of firms and on firm
sizes (Sharma and Narayan, 2014). Robins and Smith (2017) show that the TOM effect is
dependent on the sample period they are estimated in. They find that the TOM effect
disappears in the value weight and high size portfolio after 1978 and in the equal-weight
portfolio after 1997. Vasileiou (2018) examines the TOM effect in 11 countries that adopted
euro as their official currency in 1999. They confirm the TOM effect existence in the long run
and argue that it is not a long-lasting anomaly, but an abnormal normality. Apart from equity
markets, similar calendar anomalies have been reported for other markets also. Kumar (2015)
demonstrates the presence of the TOM effect in the Indian currency market for selected
currency pairs from January 1999 to April 2014. His findings indicate that currency markets
have become more efficient over the years, and thus, it becomes difficult for investors to earn
excess profits by timing their positions in some particular currencies and taking the
advantage of the TOM effect.

3. Data description
We have collected the daily closing stock indices of the leading stock exchanges of Brazil,
India and China from January 03, 2000 to December 31, 2017. The data has been extracted
from Bloomberg. We study three semiperipheral countries, which are also the major Turn-of-the-
emerging economies of the world: Brazil, China and India to examine the existence of the month effect
TOM effect. For Brazil, we consider the closing index prices for the Ibovespa Brasil S~ao Paulo
Stock Exchange Index (IBOVESPA), which is a gross total return index weighted by free float
market cap. This index is comprised of the most liquid stocks traded on the S~ao Paulo Stock
Exchange. China’s Shanghai Composite Index (SHCOMP) tracks the biggest and most
important public companies of the country and is considered as the representative of the
Chinese stock market. For Indian stock market, the S&P BSE Sensex Index, known as
SENSEX, is the benchmark index of the Bombay Stock Exchange (BSE). This index
comprises 30 of the largest and most actively traded stocks on the BSE, a representative of
Indian stock market.
The full study is divided into three subperiods: pre-GFC period from January 2000 to
December 2007; during-GFC period from January 2008 to December 2009; and post-GFC
period from January 2010 to December 2017. For the classification of crisis period, we follow
the recent study of Eng et al. (2019). One of the motivations to examine these countries is that
they have become the most dominant emerging economies (Focacci, 2007; Schmalz and
Ebenau, 2012; and Hopewell, 2017). As per the information available on the International
Monetary Fund as of 2019, the aggregate contribution of Brazil, China and India to the world
GDP based on PPP is almost 30% [1].

4. Research methodology
The TOM is defined in different ways in different studies. We follow the most accepted
definition, provided in the work of Lakonishok and Smidt (1988), Ogden (1990) and Kumar
(2015). These studies define the TOM as the last trading of the previous month and the first
three days of a given month. The four days constitute as the TOM days, whereas the rest of
the days of the month are assigned as the non-TOM days. We study the behavior of the daily
closing value of the indices of Brazil, China and India as compared to returns on the rest of the
days of the month. Thus, the objective of our study is to investigate if there is any difference
between the returns in the TOM days viz-a-viz the other days of the month, that is, non-
TOM days.
The daily returns in the stock indices are calculated as the 100 times the natural logarithm
differences of the two successive daily closing prices, such that the returns are in their
percentage form:
 
Pi;t
Ri;t ¼ ln 3 100 (1)
Pi;t−1

where Ri;t is the return on the index i (IBOVESPA, SHCOMP, SENSEX) on day t, and Pi;t is
the closing prices of the index i on day t, whereas Pi;t−1 is the closing prices of the index i on
day t1.
We use the ordinary least square (OLS) regression method to determine the separate
returns for both TOM and non-TOM. Following is the OLS regression equation:
Ri;t ¼ αi þ βi Di; t þ εi;t (2)

where Di; t is a dummy variable that will take the value of 1 for TOM trading days while
0 for non-TOM trading days and εi;t is the error term.
The intercept term αi in Eqn (2) indicates the returns in the non-TOM trading days and
then the dummy variable has value of 0. However, we infer that the non-TOM trading days
have returns that are significantly different from 0 only if αi is significant. Further, the slope
coefficient βi signifies the additional returns for the TOM trading days over and above the
MF returns on the non-TOM trading days. Thus a significantly positive βi implies that the returns
on the TOM trading days are higher than the other trading days’ returns. Also, a negative βi
can be interpreted as lower returns in the TOM trading days than that of the non-TOM
trading days’ returns. Therefore, we interpret the presence of the TOM effect in the indices
returns for ith index for which βi is significantly positive.

5. Results and findings

The sample period is analyzed in two segments: in the first part, we take data for the entire
period, from January 2000 to December 2017; in the second part, the data is analyzed in three
subperiods: pre-GFC, during-GFC and post-GFC period as defined earlier. This will help us
understand whether the 2008 GFC has impacted the markets of Brazil, China and India as far
as the TOM effect is concerned.

5.1 Descriptive statistics

Table 1 provides the descriptive statistics of the daily returns of the indices of Brazil, China
and India. We find that the mean of daily returns are significantly different from 0 at 10%
significance level for Brazil and at 5% significance level for India; however, the mean returns
for China are not significantly different from 0. The maximum returns are observed in India
while Brazil shows the minimum daily returns. Further, Jarque–Bera, the test statistic for
normality, indicates that the null hypothesis of normality can be rejected at 1% level of
significance for all countries. The same is evident from the higher value of kurtosis in Table 1.
To check the stationarity of returns, we use augmented Dickey–Fuller (ADF), Philips and
Perron (PP) and Kwiatkowski–Phillips–Schmidt–Shin (KPSS) tests. The null hypothesis of
the ADF test states the series is nonstationary and as shown in Table 1, we reject the null
hypothesis of series containing a unit root at 1% level of significance implying that the
considered time series of indexes’ returns are stationary. Lee and Rui (2002) state that even in
the presence of high serial correlation and heteroskedasticity in the time series, the PP test
produces more robust results. Under KPSS test, the null hypothesis is that the series is
stationary, which is not rejected for any of the time series. The results of PP and KPSS test

Brazil India China

Mean (%) 0.047* 0.050** 0.031

Median 0.000 0.026 0.000
Maximum 14.658 17.339 9.857
Minimum 11.393 11.139 8.841
SD 1.748 1.448 1.534
Skewness 0.053 0.022 0.190
Kurtosis 7.411 11.926 8.399
Jarque–Bera 3,808*** 15584.3*** 5730.3***
ADF 68.89*** 65.13*** 67.55***
PP 69.00*** 65.05*** 67.60***
KPSS 0.103 0.1134 0.0791
Observations 4,694 4,694 4,694
Note(s): The table shows the descriptive statistics of Brazil, China and India’s index daily returns from
January 2000 to December 2017. Jarque–Bera is the test statistic for normality that follows χ 2 distribution with
two degrees of freedom. Null hypothesis rejection is indicated by *** at 1%, ** at 5% and by * at 10% level of
Table 1. significance. ADF reports the test statistic of the augmented Dickey–Fuller test; PP denotes the Philips and
Summary statistics Perron test and KPSS stands for Kwiatkowski–Phillips–Schmidt–Shin test of stationarity
confirm the ADF test for all indices. Further, the plot of all indices’ returns for the full sample Turn-of-the-
is shown in Figure 1. month effect

5.2 Full sample calendar anomaly results

Table 2 presents the results of Eqn (2) for the full sample. The results show that the indices of
all considered emerging markets exhibit significant TOM effect. The positive sign of the βi
coefficient shows that the average returns during TOM days for all the considered emerging

IBOVESPA SENSEX
80,000 40,000

60,000 30,000

40,000 20,000

20,000 10,000

0 0
00 02 04 06 08 10 12 14 16 00 02 04 06 08 10 12 14 16

IBOVESPA RETURNS SENSEX RETURNS

0.16 0.20

0.12 0.15

0.08 0.10

0.04 0.05

0.00 0.00

–0.04 –0.05

–0.08 –0.10

–0.12 –0.15
00 02 04 06 08 10 12 14 16 00 02 04 06 08 10 12 14 16

SHCOMP
7,000

6,000

5,000

4,000

3,000

2,000

1,000

0
00 02 04 06 08 10 12 14 16

SHCOMP RETURNS
0.15

0.10

0.05

Figure 1.
0.00
Daily indices’ returns
–0.05
for Brazil, China and
India during the full
–0.10
sample
00 02 04 06 08 10 12 14 16
MF market indices are significantly higher than the non-TOM days. In particular, this effect is
more significant for Brazil followed by India and China. The smaller p-value of 0.0008, 0.01
and 0.0004 for Brazil, China and India, respectively, shows the significance of the TOM effect
at 1% level of significance. The value of Durbin–Watson (DW) test is approximately equal to
2 in all the three countries, which rules out the possible autocorrelation in Eqn (2). The
significant TOM effect in Table 2 indicates that a probable trading strategy may help
investors earn abnormal returns for all emerging countries. Since for the full sample, the
returns during TOM days are significantly higher than those during non-TOM days,
compounding these extra returns involving the TOM days produces average annual excess
returns to the tune of 0.115% for Brazil, 0.077% for China and 0.10% for India.
Overall, the average returns during TOM days for all the considered emerging market
indices are significantly higher than the non-TOM days. The same pattern is evident when we
show the summary statistics of the TOM and non-TOM days separately in Table 3. The table
shows that returns during TOM days are significantly positive and different from 0 for all
countries while it is not true for returns during non-TOM days.

5.3 Subsample calendar anomaly results

The results show a changed pattern when analyzed for separate subperiods. In Table 4 we
present these results for three subperiods: pre-GFC, GFC and post-GFC period. Panel A shows
the result for the pre-GFC period, that is, from January 2000 to December 2007. The average
returns for Brazil and India for the pre-GFC period are higher on the TOM days than on the
non-TOM days. However, in contrast to Table 2, it is interesting to observe that the effect
disappears in China during the pre-GFC period as the average returns on the TOM days are
similar to the non-TOM days. Therefore, we report that there is strong evidence for the TOM
effect in Brazil and India at 1% level of significance, but not for China during the pre-GFC
period.
In Panel B, the GFC period, the results show that the TOM effect disappears in Brazil and
India, whereas for China, the effect is significant. On comparing the returns of the TOM and
non-TOM days, it is observed that for Brazil and India, the average returns in TOM trading
days are similar to the average returns; but for China, the average returns during the TOM
days are higher than the non-TOM days at 5% level of significance. Similar to Floros (2008)
and Vasileiou and Samitas (2015), we argue that during the GFC period, financial trends have
changed; therefore, the TOM effect does not hold during this period. For the post-GFC period,
the results, presented in Panel C, show an evidence of significant TOM effect for China and
India at 10% level, while the effect is stronger for Brazil at 5% level. Thus, the average
returns in all the three countries for the TOM days are significantly higher than the average
returns on the non-TOM days.
Using the same strategy as explained in Table 2, the investors can time the market and
earn average excess returns for different currencies during different subperiods. For
instance, in the pre-GFC subsample, Brazil and India offer 0.15 and 0.126% average annual
excess returns, while it is not possible to exploit such a strategy for China. However, during

αi βi DW N

Brazil 0.007 (0.809) 0.221*** (0.001) 2.010 4,694

China 0.003 (0.894) 0.149*** (0.010) 1.972 4,694
India 0.014 (0.537) 0.193*** (0.000) 1.904 4,694
Table 2. Note(s): The table shows the estimation results for Eqn (2) of daily returns for during the full sample period
Full sample TOM effect January 2000–December 2017. Rejection of the null hypothesis is indicated by *** at the 1% significance level.
results Figures in the parenthesis show the p-value. DW is the Durbin–Watson statistic
 TOM days Non-TOM days
Brazil India China Brazil India China

Mean (%) 0.227*** 0.207*** 0.152*** 0.007 0.014 0.003

Median 0.130 0.160 0.000 0.000 0.000 0.000
Maximum 7.633 8.221 8.133 14.658 17.339 9.857
Minimum 7.337 7.154 8.257 11.393 11.138 8.841
Std. Dev 1.751 1.401 1.425 1.746 1.456 1.557
Skewness 0.134 0.239 0.039 0.035 0.080 0.208
Kurtosis 5.066 7.365 8.718 7.961 12.877 8.314
Jarque–Bera 156.1*** 693.2*** 1,176*** 3,930*** 15575*** 4,536***
ADF 29.04*** 28.82*** 30.22*** 63.21*** 58.76*** 60.59***
PP 29.04*** 28.82*** 30.22*** 63.71*** 58.75*** 60.59***
KPSS 0.167 0.287 0.048 0.072 0.104 0.112
Observations 863 863 863 3,831 3,831 3,831
Note(s): The table shows the descriptive statistics of Brazil, China and India’s index daily returns from January 2000 to December 2017, separately for the TOM and non-
TOM days. Jarque–Bera is the test statistic for normality that follows χ 2 distribution with two degrees of freedom. Null hypothesis rejection is indicated by *** at 1% level
of significance. ADF reports the test statistic of the Augmented Dickey–Fuller test; PP denotes the Philips and Perron test and KPSS stands for Kwiatkowski–Phillips–
Schmidt–Shin test of stationarity
Turn-of-the-
month effect

Summary statistics for

TOM and non-
Table 3.

TOM days
MF αi βi DW N

Panel A: Pre-GFC (January 2000–December 2007)

Brazil 0.026 (0.549) 0.293*** (0.004) 1.954 2085
China 0.068 (0.689) 0.038 (0.643) 1.975 2085
India 0.031 (0.401) 0.242*** (0.004) 1.900 2085
Panel B GFC (January 2008–December 2009)
Brazil 0.023 (0.857) 0.139 (0.645) 2.088 523
China 0.178 (0.221) 0.630** (0.018) 2.043 523
India 0.063 (0.601) 0.353 (0.209) 1.915 523
Panel C: Post-GFC (January 2010–December 2017)
BRAZIL 0.016 (0.633) 0.169** (0.0321) 2.032 2086
China 0.016 (0.622) 0.139* (0.067) 1.930 2086
India 0.018 (0.447) 0.103* (0.056) 1.902 2086
Note(s): The table shows the estimation results for Eqn (2) of daily returns for the pre-GFC period in Panel A,
Table 4. GFC period in Panel B and post-GFC period in Panel C shows. Rejection of the null hypothesis is indicated by
Subsample analysis of *** at the 1%, ** at the 5% and * at the 10% significance level. Figures in the parenthesis show the p-value. DW
TOM effect is the Durbin–Watson statistic to measure degree of autocorrelation

the GFC period, the evidence of earning excess returns is significant only for China, which
offers 0.328% average annual excess returns. As far as the post-GFC subsample is concerned,
all the emerging markets offer an opportunity to earn excess returns by exploiting the TOM
effect, though the magnitude of the returns is not large enough. For example, Brazil, China
and India, respectively, offer annual excess returns of 0.088%, 0.072 and 0.054% only.
The results of Tables 2 and 4 show that the markets of Brazil, India and China behave
similarly for the full sample period, pre-GFC and post-GFC period. However, the results for
China are different from Brazil and India for the GFC period. It is a well-known fact that China
was one of the least affected economies globally during the GFC. In fact, a report by
Carnegie’s International Economic Bulletin shows that China was the least affected nation as
far as the impact of the GFC is concerned. From September 2008 to May 2009, the Chinese
stock market fell by only 11% while its currency depreciated only by 0.3% during the same
period [2]. Therefore, it is not hard to believe that the TOM effect does not disappear during
the GFC in China’s stock market.
Overall, for the full sample, our results indicate that the market participants can time the
stock markets of these countries by taking long positions especially during the times when
the TOM effect is highly significant. However, the trend is not consistent when the full sample
period is divided into subsample periods. For the subsample analysis, we find that the TOM
effect is dominant before and after the GFC and disappears during the GFC period. Our
results are similar to Robins and Smith (2017), who show that the TOM results are sample-
dependent. That the TOM effect disappears during the GFC could be because the financial
and economic conditions undergo a drastic change during the recession period, which
eventually eliminates the calendar anomalies (Vasileiou and Samitas, 2015). These results,
though, contradict the EMH, which argue that markets become more efficient with time,
however, are consistent with the AMH, which states that each market adapts differently to
certain market conditions (Urquhart and McGroarty, 2014). Similar to Urquhart and
McGroarty (2014), our study also supports the AMH in that the TOM effect varies during
different market conditions. An important implication of AMH is that during different times
in various financial markets, arbitrage opportunities do arise. Thus, those strategies designed
to exploit the arbitrage may not work during a certain time, but then can return to
profitability when market conditions become more conducive.
6. Robustness results Turn-of-the-
6.1 Eliminating the day of the week effect month effect
It may be possible that our results for the TOM effect in Tables 2 and 4 are driven through
another important calendar anomaly, the DOW effect. DOW effect shows that stock returns
appear to behave differently on different days of the week, especially positive on Fridays and
negative on Mondays (Cross, 1973; Choy and O’hanlon, 1989; Wong et al., 2006). Thus, in
order to provide a robustness check of our results for the presence of the TOM effect in Brazil,
China and India, we have excluded the Mondays and Fridays from TOM days, to ensure that
returns during TOM days are not driven by the DOW effect. Doing so, our sample size
reduces to 4,329 daily observations. Table 5 presents the results eliminating the DOW effect.
We find that the TOM effect still exists in the three countries for the full sample period, similar
to Table 2. Further, the results are robust for the subsamples also. During the pre-GFC period,
the average returns on the TOM days are higher for Brazil and India; and for China, they are
insignificantly different from non-TOM days. Similarly, for the GFC and post-GFC period, the
results are similar to Table 4. Thus, the results are not significantly different from those
reported in Tables 2 and 4 after controlling for the DOW effect.

6.2 Using different subsample periods

The existence and otherwise of the TOM effect for different sample periods may change if the
crisis period duration is changed. We have analyzed the TOM results by changing the
classification of the crisis period as per Mollah et al. (2016) and Kumar et al. (2019), who
consider GFC as the period from August 09, 2007 to December 31, 2009. Doing so, the number
of observations for the pre-GFC, GFC and post-GFC period become 1981, 627, 2086,
respectively. We find that our results do not change in different periods (though not reported
here; they are available upon request). Overall, we conclude that our results are qualitatively

αi βi DW N

Panel A: Full sample period (January 2000–December 2017)

Brazil 0.007 (0.810) 0.201** (0.016) 2.027 4,329
China 0.003 (0.895) 0.187** (0.011) 1.988 4,329
India 0.014 (0.536) 0.175** (0.011) 1.925 4,329
Panel: Pre-GFC (January 2000–December 2007)
Brazil 0.026 (0.552) 0.259** (0.042) 1.981 1924
China 0.068* (0.054) 0.062 (0.552) 2.007 1924
India 0.031 (0.401) 0.290*** (0.002) 1.890 1924
Panel C: GFC (January 2008–December 2009)
Brazil 0.023 (0.857) 0.143 (0.704) 2.083 484
China 0.178 (0.119) 0.604* (0.069) 2.046 484
India 0.063 (0.5959) 0.279 (0.419) 1.966 484
Panel D: Post-GFC (January 2010–December 2017)
Brazil 0.005 (0.890) 0.181* (0.065) 2.055 1921
China 0.016 (0.624) 0.207** (0.033) 1.937 1921
India 0.038 0.148* 1.945 1921
(0.153) (0.058)
Note(s): The table shows the estimation results for Eqn (2) of daily returns for the full sample period in Panel Table 5.
A, pre-GFC in Panel B, GFC in Panel C and post-GFC period results in Panel (D). Rejection of the null hypothesis TOM results after
is indicated by *** at the 1%, ** at the 5% and * at the 10% significance level. Figures in the parenthesis show controlling for the
the p-value. DW is the Durbin–Watson statistic, which measures degree of autocorrelation DOW effect
MF similar under different classifications of crisis periods as used by many studies and not
driven by the DOW effect.

7. Conclusion and policy implications

We analyze the TOM effect in the stock markets of three leading emerging countries – Brazil,
India and China from January 2000 to December 2017. Our results show the evidence of
pricing frameworks, which are country-specific and time-specific. For instance, the indices of
all considered emerging markets exhibit significant TOM effect. The average returns during
TOM days for all the considered emerging market indices are significantly higher than the
non-TOM days for the full sample.
On evaluating the additional analysis of the TOM effect in three emerging nations, we
show different incidents of the TOM effect for different subsamples. The average returns for
Brazil and India for the pre-GFC period are higher on the TOM days than on the non-TOM
days. During the GFC period, the results show that the TOM effect disappears in Brazil and
India, whereas for China, the effect is significant since the impact of the GFC was the least on
China. For the post-GFC period, the results show an evidence of significant TOM effect for all
the considered countries. These results are consistent with the AMH, which states that each
market adapts differently to certain market conditions. Our study supports this hypothesis
since the TOM effect varies during different market conditions. AMH argues that during
different times in various financial markets, arbitrage opportunities do arise; however,
strategies designed to exploit the arbitrage may not work during a certain time, but then can
return to profitability when market conditions become more conducive.
Our results indicate that the market participants can time the stock markets of these
countries by taking long positions especially during the times when the TOM effect is highly
significant. For instance, since India and Brazil exhibit significant TOM effect in the pre-GFC
period, investors can earn abnormal returns in these stock markets by taking a long position
during TOM days and a short position during non-TOM. Similarly, in the post-GFC period,
the same strategy helps earn abnormal returns for all the considered stock markets. However,
during the GFC period, none of the stock markets (except China) exhibit significant TOM
effect; therefore an effective trading strategy cannot beat the passive buy and hold strategy.

Notes
1. GDP based on PPP, share of world, www.imf.org.
2. https://carnegieendowment.org/2009/07/09/unequal-impact-of-economic-crisis-pub-23385

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Corresponding author
Satish Kumar can be contacted at: satishwar1985@gmail.com

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