IIMB Management Review (2023) 35, 258–266

available at www.sciencedirect.com

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journal homepage: www.elsevier.com/locate/iimb

The effect of Hungry Ghost Festival (HGF) on

stock market returns and volatility: An empirical
analysis of Asian stock markets
Wan Mohd Farid Wan Zakariaa,1, Nur Liyana Mohamed Yousopa,1,*,
Wan Muhd Faez Wan Ibrahimb, Sharazad Harisa,
Syed Khusairi Tuan Azamc

a
Faculty of Business and Management, Universiti Teknologi MARA, Cawangan Johor, Segamat, Malaysia
b
Faculty of Business and Management, Universiti Teknologi MARA, Cawangan Sarawak, Samarahan,
Malaysia
c
Faculty of Accounting, Universiti Teknologi MARA, Cawangan Johor, Segamat, Malaysia

Received 23 December 2021; revised form 11 May 2022; accepted 17 August 2023; Available online 24 August 2023

KEYWORDS
Hungry ghost festival;
Event study;
Generalised autoregres-
sive conditional
heteroscedasticity;
Rare event;
Asian stock market
Abstract This study examines the effect of the Hungry Ghost Festival (HGF) on stock returns
and volatility in five Asian stock indices. Shanghai demonstrated the highest average return and
dispersion, while Singapore had the lowest. During the HGF, all countries’ kurtosis spiked, except
for Philippines and Shanghai, signalling a high-risk investment with high returns. Finally, the cur-
rent volatility of daily stock returns persists across countries and is influenced by previous
shocks. Investment during the HGF may appear riskier and more volatile in some countries, but
there is inconclusive evidence to conclude that the HGF had a significant effect on all markets.
© 2023 Published by Elsevier Ltd on behalf of Indian Institute of Management Bangalore. This is
an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/
by-nc-nd/4.0/)

Introduction beliefs. HGF is normally celebrated on the 14th or 15th day of

Chinese culture engages with luck and fortune more than any
other culture. Many Chinese believe there are numerous
ways to bring good fortune and avoid bad luck (Huang et al.,
2023; Wu & Han, 2018). As a means to ward off bad fortune,
cultural beliefs assume paramount importance. The Hungry
Ghost Festival (HGF) is one of the most prominent cultural
*Corresponding author: (Nur Liyana). Phone: +6013-3029196
E-mail address: nurliyana@uitm.edu.my (N.L. Mohamed Yousop).
1
First and second authors have contributed equally to this
manuscript.
https://doi.org/10.1016/j.iimb.2023.08.003
0970-3896 © 2023 Published by Elsevier Ltd on behalf of Indian Institute of Management Bangalore. This is an open access article under the CC
BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
the seventh lunar month (usually from the end week of July
or the beginning of August until the middle of September).
Getting married, starting a new business, buying a new asset,
going public, or investing in the stock market are just a few
of the activities that will be avoided during the festival (Busi-
ness World, 2018). Cultural beliefs among stock market par-
ticipants are not new, as previous research has demonstrated
that cultural beliefs influence investor behaviour and market
outcomes. Whether it is the big guys on the block (fund man-
agers and institutional investors) or the retail investors, those
cultures’ beliefs are applied in the daily lives of investors and
frequently influence decision-making, including important
The HGF effect on Asian stock markets
business and investment decisions (Raesita & Mahadwartha,
2020).
According to Villafuerte (2020), long-term investors will be
less affected by the ghost month because they will invest and
buy stocks on normal trading days with less fear and worry.
The existence of the ghost month is usually unimportant to
medium-term investors because they will continue to invest
and buy stocks as usual, but they will be cautious when prices
approach support levels. Finally, a short-term investor may
believe that, while investing and purchasing stocks will be dif-
ficult during the ghost month, there will still be opportunities
to profit, and they must be more cautious than usual.
The Asian Stock Exchange is a great example of a market
that is exposed to Chinese culture, with Chinese populations
exceeding 22% in Malaysia, 75% in Singapore, 92% in Hong
Kong and 98% in Shanghai, but only 1.8% in the Philippines
(pure Chinese). Over the past decade, as evidenced by the
Shanghai Composite Index, the Hang Seng Index and the Phil-
ippine Stock Exchange Index, investors have tended to hold
off on their investment decisions when the market is down.
Because stock prices are perceived to be weak due to a
decline in buying activity, any investment activities during this
HGF are considered bad luck. This is further supported by the
fact that the volume of transactions decreases during HGF
months. Another issue is that investor behaviour is difficult to
observe and predict due to their preferences and surround-
ings. On days when the market returns are high, most invest-
ors who believe in the HGF choose to invest in the opposite
direction, buying fewer shares and selling more on days when
the market returns are low (Kuo, Lin, & Zhao, 2019). This
shows that even contrary to normal investment norms, if
investors experience optimism and good fortune in their daily
lives, they may be more optimistic about the likelihood of
future success, which in turn influences their trading behav-
iour (Huang, Chiu, Lin, & Robin, 2022) and vice versa.
This study aims to empirically investigate the effect of
the HGF period (pre, during and post) on stock returns and
volatility, specifically in the five Asian countries. We used
descriptive statistics analysis, OLS regression, and GARCH
(1,1) analysis to investigate the effects of returns and vola-
tility on the HGF period. Results from descriptive analysis
provide basic summaries of each country’s stock’s average
returns and spread. An OLS regression analysis with dummy
variables demonstrated the relationship between returns
and HGF periods. As a general rule for dummy variables,
according to Gujarati (1995), if a variable has m categories,
only m
1 dummy variable should be introduced, whereas in
this study, we decided to dummy both during and post HGF.
The GARCH (1,1) test was used to determine the volatility of
stock returns. Finally, this study differs in that we thoroughly
examine the empirical findings on the HGF, contribute to a
broad stream of literature, and present cutting-edge
research on investing to a significant practitioner, primarily
from the investors’ and researchers’ perspectives.
Literature review
According to conventional behavioural finance theory, most
investors are rational and aim to maximise their net worth
at every opportunity. However, their emotions and psychol-
ogy often influence their decisions, resulting in irrational or
259
unpredictable behaviour. Kahneman and Tversky’s (1979)
Prospect Theory was the first attempt to use cognitive psy-
chology to explain economic decision-making on the premise
that individuals are not always rational. One factor contrib-
uting to investors’ irrationality is the existence of market
anomalies and behaviours that defy conventional wisdom,
among the most common anomalies that have been widely
discussed for the past few years, including the January
effect (Milosevic-Avdalovic & Milenkovic, 2017; Thaler,
1987), holiday effect (Kim & Park, 1994; Milosevic, Andelic,
Vidakovic, & Dakovic, 2019), weekend effect (Arora & Bajaj,
2017; Borges, 2009; Eleftherios, 2015; Lakonishok & Levi,
1982), Ghost festival effect (Almonte, 2016; Robiyanto &
Puyandani, 2015), The Ramadhan effect (Bia»kowski, Ete-
bari, & Wisniewski, 2012; Hassan & Kayser, 2019; Khan,
Ullah, & Asif, 2017; Ozlem & Tan, 2018; Sonjaya & Wahyudi,
2016), and the lunar effect (Dichev & Janes, 2003; Gao,
2009; Munyasia, Ouma, & Ochieng, 2017; Nur Liyana et al.,
2021; Yuan, Zheng, & Zhu, 2006). As a result, more investors
become aware of calendar anomalies, and exploiting them
will eliminate the possibility of earning abnormal returns
(Kumar, 2017; Plastun, Sibande, Gupta, & Wohar, 2019; Sha-
naev & Ghimire, 2021). Notwithstanding, one problem with
finding patterns in a calendar is that once found, they imme-
diately disappear (Dupernex, 2007).
Cultural beliefs undoubtedly influence investor behaviour
and financial markets (Bhattacharya, Kuo, Lin, & Zhao,
2018; Hirshleifer, Jian, & Zhang, 2018). Investors in the West
can be equally irrational when it comes to cultural beliefs.
Friday the 13th, a well-known Western cultural belief, is
when the thirteenth of the month fell on a Friday. This is a
bad day for investors and traders who believe that stock
market trading on this day will bring them bad luck. For
believers, they tend to liquidate their positions prior to Fri-
day the 13th, which causes stock prices to fall, whereas
those who refuse to buy during the day will buy the following
day, which causes stock prices to rise. According to Dumitriu
and Stefanescu (2019a), from January 1990 to April 2019,
four indices traded on the United States Stock Exchange
experienced abnormal returns following Friday the 13th –
Dow Jones Industrial Average (DJIA), Standard & Poor’s 500
(S&P 500), NASDAQ Composite, and Russell 2000. Pre-Friday
the 13th returns were lower than returns after Friday the
13th (Dumitriu & Stefanescu, 2019b; Stefanescu & Dumitriu,
2019). In another region, according to a study conducted in
South Africa and Kenya by Botha (2013), cultural beliefs
have no impact on African stock markets due to insignificant
returns on regular Fridays and Friday the 13th.
The aforementioned studies highlighted the prevalence
of cultural beliefs among investors in the West and Africa,
but only a few studies on the effects of cultural beliefs have
been conducted, with a particular emphasis on various cul-
tural beliefs in Asian countries. Santos (2015) researched
how Japanese cultural beliefs affect the Tokyo Stock
Exchange’s (TSE) stock market return. He followed the tradi-
tional Japanese Lunisolar calendar, which has six days per
week, from May 1949 to January 2001. The Lunisolar calen-
dar is Japan’s equivalent of the Lunar calendar, indicating
both the moon phase and the time of year. There are six
days in a week in the Japanese version, with the first day
being Senkachi, the second day being Tomobiki, the third
day being Senmake, the fourth day being Butsumetsu, the
260
fifth day being Taian, and the sixth day being Shakkuchi (last
day). According to his research, from 1949 to the early
1980s, the fourth day (Butsumetsu) had an effect on stock
market returns. Following that, the fourth day saw no
change due to a variety of factors, including the presence of
foreign investors in the Japanese stock market.
In other cultures, Suganda, Sumargo, and Robiyanto
(2018) studied Javanese beliefs. In the Javanese traditional
calendar, a week consists of 5 days known as Legi, Pahing,
Pon, Wage, and Kliwon. As Kliwon represents the first day of
the week, most investors will take precautionary action to
avoid Kliwon Day to trade. Using data from the Jakarta Stock
Exchange (JSE) from 2009 to 2016, they discovered a signifi-
cant relationship between Kliwon day and market return.
The findings revealed that the Kliwon day produced lower
returns when compared to other days, both before and after.
This demonstrates how investors and traders still adhere to
their beliefs even in the modern era, resulting in biases and
allowing belief to influence their decision-making.
A refocused study on the HGF and the equity market in
the Philippines was conducted by Almonte (2016). She con-
ducted a study on superstition in the Philippine market,
including the effect of the ghost month (along with Friday
the 13th and the October effect) on stock market returns.
According to the study, the Philippine stock market followed
cultural beliefs, with a stronger presence of ghost month
than the effect of Friday the 13th. The study, however, was
unable to demonstrate the existence of the October effect
in the aforementioned market. In contrast to Almonte
(2016) ’s findings, Ong (2018) contends that while stock mar-
kets (particularly those dominated by Chinese investors) are
expected to slow during this period, the Philippine stock
market will be unaffected. He also stated that over a 10-
year period from 2008 to 2018, the Philippine Stock
Exchange Composite Index (PSEi) produced positive returns
70% of the time, providing investment opportunities during
unlucky months.
Another study by Almonte (2018) emphasised that the
ghost month effect was undetermined when the sample
used included all of the equity indices in the said country,
rather than focusing on a single index (namely PSEi). The
findings highlighted that only three of the eight indices, the
Financials index, the Holding Firms index and the Industrial
index, have a significant relationship with returns. As a
result, the existence of the ghost month in the local market
was deemed inconclusive.
In terms of methodologies used, Li, Wang, Ji, and Tang
(2020) applied descriptive statistics and panel Ordinary
Least Square (OLS) regression of random effects to test the
relationship between numerical belief and the volatility of
stock prices in China. Santos (2015) used descriptive statis-
tics and equality tests on the daily returns of the fourth day
and non-fourth days of the Lunisolar calendar to test the
existence of Japanese cultural beliefs and their influence on
the TSE return. Suganda et al. (2018) employed descriptive
statistics and time-series analyses, namely ARCH and
GARCH, to examine the relationship between Kliwon day
and stock market yield. Results from their study found that
only Wage Thursday has an effect on the return of the
Jakarta Composite Index (JCI). Casalin (2018) described the
stationary stochastic process by using GARCH and Autore-
gressive Moving Average (ARMA).
W.M.F. Wan Zakaria et al.
Some researchers use a nonparametric methodology in
addition to a parametric methodology. For example, Borow-
ski (2019) studied the presence of unfortunate days’ effects
on the stock market return of 52 world indices. Equality
tests between two mean rates of return within each popula-
tion and the Kruskal–Walli’s test were implemented in the
study. Besides the equality test, he employed four different
methods to calculate the market return. Borowski (2018)
adopted the same method he used in his recent study to test
the presence of the same. However, the latter shifted the
focus of the study towards the commodity market, focusing
on 29 commodity prices.
From past studies, it is difficult to draw any conclusions
about the HGF month’s abnormal returns or its influence on
stock market returns, despite a few studies into supersti-
tious beliefs. In terms of using superstitions like the ghost
month in their investment decisions, stock market investors,
both novices and experts, appear to hold a split opinion. It is
also possible that the lack of research on these topics is due
to the fact that the HGF month is less widely known than Fri-
day the 13th. There may be another reason for this cultural
belief (that the month in question is bad luck) being more
prevalent among the elderly, who tend to have a higher level
of belief than those in the younger generation (Agarwal,
Choi, He, & Sing, 2016). As a result, further investigation is
needed as these cultural beliefs will directly or indirectly
affect their trading behaviour, influencing demand and sup-
ply in the market and thus affecting stock market returns.
Data and methodology
This study analysed the daily stock return data of five coun-
tries, including Singapore (FTSE Straits Times Singa-
pore) = 2,507, Malaysia (FBM Kuala Lumpur Composite
Index) = 2,470, Philippines (Philippines Stock Exchange
Inc) = 2,439, Shanghai (Shanghai Stock Exchange) = 2,433
and Hong Kong (Hang Seng Index) = 2,464 from its opening in
January 2011 to December 2020. Figure 1 depicts the returns
series and overall sample periods for each country.
All data were observed based on their performance in
expat.com as the most promising Asian country for foreign
investors. In conducting this study, the period of HGF month
(pre, during and post) was evidently explained in Figure 2
based on the data derived from timeanddate.com (HGF
Observances). The calculation of the number of days (N-
days) of the pre-and post-HGF month was determined from
the number of days fallen during the HGF month.
The HGF is celebrated on every 15th lunar day of the sev-
enth lunar month or falls on a day of July, August, or Septem-
ber in the Gregorian calendar (Jiang, 2021). Thus, the
determination of the HGF periods is calculated as given in
Table 1:
To conduct this study, the following steps are taken into
consideration to perform the diagnostic test, OLS regression
and GARCH (1,1).
Step 1: Calculation of the return. The tests of this study
began by developing the data of daily stock returns of
each stock market using a formula defined in Eq. (1).
Ct
O t
Rt ¼  100 ð1Þ
Ot
The HGF effect on Asian stock markets 261

Figure 1 Demonstrates the returns on five Asian stock exchanges from January 2011 to December 2020. This graph illustrates the
daily returns of Hang Seng Index, FBM Kuala Lumpur Composite Index, Philippines Stock Exchange Inc., Shanghai Stock Exchange and
FTSE Straits Times Singapore.

where Rt represents the daily rates of return, Ct repre-

sents the closing price of a security at the t trading day,
and Ot represents the security’s opening price at the t Table 1 Period of ghost month.
trading day. Year Period N-days Ghost festival
Step 2: Descriptive Statistics. A brief summary of the
data using descriptive statistics, i.e., mean, standard 2011 July 31 to August 28 29 August 14
deviation, skewness, kurtosis and Jarque-Bera, were 2012 August 17 to September 15 30 August 31
developed to provide basic information about variables 2013 August 7 to September 4 29 August 21
used and to highlight possible relationships between vari- 2014 July 27 to August 24 29 August 10
ables in a dataset. 2015 August 14 to September 12 29 August 28
Step 3: Diagnostic Test. The existence of the unit root 2016 August 3 to August 31 28 August 17
was first examined using the Augmented Dickey-Fuller 2017 August 22 to September 19 28 September 5
(ADF) test and the Lagrange Multiplier test (ARCH-LM). 2018 August 11 to September 9 30 August 25
The unit root was inspected to detect the presence of the 2019 August 1 to August 29 29 August 15
unit roots, which can lead to many problems, such as spu- 2020 August 19 to September 16 29 September 2
rious regression. Further, the ARCH effect was then ana- Note: N-days is the period of the HGF month.
lysed by examining the residuals for evidence of
heteroscedasticity.
Step 4: Ordinary Least Square (OLS) Regression. In
Eq. (2), the OLS model was developed to investigate the security’s average rates of return have a significant rela-
relationship between each index’s average rates of return tionship with the pre, during and post-ghost month
for all HGF periods (pre, during and post). The alternative period, and the null hypothesis (H0) is vice versa. How-
hypothesis (H1) for the following regression is that each ever, as a general rule for dummy variables, if a variable

Figure 2 Time frame of hungry ghost festival (pre, during and post month windows).
Note: The calculation of N depends on the number of days fallen during ghost month each year.
262 W.M.F. Wan Zakaria et al.

has m categories, only m
1 dummy variables should be Findings

introduced (Gujarati, 1995). Thus, only the periods dur-
ing and post-HGF are specified for further investigation.
Failure to reject the null hypothesis at 1%, 5% or 10% sig-
nificant levels implies no significant relationship between
dependent and independent variables.
Rt ¼ a þ λRt
1 þ bduring Dduring;t þ bpost Dpost;t þ et
where Rt is the average rate of return of each security on
the period t, a is a value of R if other variables are zero
(intercept), λ is the coefficient of return on the t ̶ 1 day, bi
(where i = during, post) is the coefficient measuring the
change in rates of return with respective independent vari-
ables, Dduring,t is a dummy variable for during the HGF
month period on the period t and Dpost,t is a dummy vari-
able for the post-HGF month period on the period t.
Step 5: GARCH (1,1). Instead of the ARCH model, the
GARCH model developed by Bollerslev (1986) is the most
commonly used in modelling volatility in financial time
series. In this study, the modified volatility of returns for
the GARCH (1,1) model was determined as follows using
Eqs. (3) and (4):
Rt ¼ u þ λRt
1 þ et
s 2t ðuÞ ¼ u þ g 1 Dduring þ g 2 Dpost þ a1 e2t
1 þ b1 s 2t
1
where u is the constant coefficient, g is the coefficient of
dummy variables, λ is the coefficient of return on the t ̶ 1
day, a and b represent the coefficient of ARCH and
GARCH, respectively. Finally, another run of the ARCH-
LM test was performed to confirm that the GARCH (1,1)
models remained valid.
Descriptive statistics
Table 2 shows descriptive statistics of the daily return series.
Over the entire sample period, the average returns show
ð2Þ either positive or negative results, close to zero and in non-
normal distribution (according to probability results of the
Jarque-Bera), a common scenario in the stock return series.
Shanghai demonstrates the highest return (avg.
return = 0.1102) during the HGF period, whereas Singapore
represents the lowest with an average return of
0.1421. In
terms of dispersion, the standard deviations of return are
higher during the HGF month than other counterparts signal-
ling the investment is riskier and more volatile. The same
findings are obtained: Shanghai records the highest disper-
sion with a standard deviation of 1.2296, and Singapore with
the lowest (standard deviation = 0.6375).
On the other hand, the overall kurtosis of the stock
returns is excessive (greater than 3), indicating that the
stock returns series follows a leptokurtic distribution (heavy
tails). By excluding the Philippines and Shanghai, the kurto-
sis for all countries spikes during the HGF month, showing
ð3Þ that the investment is considered perilous and would experi-
ence extreme returns. Finally, from the Jarque-Bera test,
results uniformly rejected the null hypothesis at 1% (a < 1%)
ð4Þ
and 5% (a < 5%) except for the post-HGF month in Hong
Kong, suggesting that most of the return series are not nor-
mally distributed.
Diagnostic test
Table 3 exhibits the unit root test results, tested using the
ADF procedure. This step first determined the optimal

Table 2 Descriptive statistics on return of pre, during, and post ghost month.

Country Avg. return Std. Dev. Skewness Kurtosis Jarque-Bera

Singapore
Pre 0.0174 0.5944 0.8089 5.2720 67.0946***
During (0.1421) 0.6375 (0.6847) 7.4396 176.2796***
Post (0.0524) 0.5378 (0.3638) 4.7008 28.3758***
Malaysia
Pre (0.0300) 0.5683 (0.0747) 5.4499 48.4486***
During (0.0117) 0.6598 (0.1119) 6.9767 127.5717***
Post (0.0114) 0.4577 (0.0014) 4.5772 21.1439***
Philippines
Pre (0.1046) 0.9279 (0.9535) 8.8226 319.0806***
During (0.0436) 1.0384 (0.3914) 5.6403 58.1419***
Post 0.04770 0.7639 0.3427 3.5852 6.8353**
Shanghai
Pre 0.0359 1.0469 0.8995 6.5754 116.1448***
During 0.1102 1.2296 (0.2972) 8.5359 264.7892***
Post 0.1948 1.1566 (0.5504) 8.7698 299.0172***
HongKong
Pre (0.1338) 0.8399 0.4998 4.5939 28.9081***
During (0.0652) 0.8749 (0.1010) 4.8769 30.4393***
Post (0.0221) 0.6935 (0.1846) 3.1866 1.4694
Note: *,**,*** indicates significance at 10%, 5% and 1% level, respectively.
The HGF effect on Asian stock markets 263

Table 3 Unit root test at I(0).

Country Singapore Malaysia Philippines Shanghai Hong Kong

t-Statistic (50.8244)*** (32.6123)*** (47.3008)*** (50.4158)*** (51.8980)***
Note: *,**,*** indicates significance at 10%, 5% and 1% level, respectively.

Table 4 Test of ARCH effect using Heteroskedasticity test: ARCH LM.

Country Singapore Malaysia Philippines Shanghai Hong Kong

F-statistic 169.4681*** 20.4740*** 418.4685*** 126.3795*** 25.45615***
Obs. R2 158.8485*** 20.3219*** 357.3923*** 120.2282*** 25.21591***
Note: *,**,*** indicates significance at 10%, 5% and 1% level, respectively.

number of lags to eliminate serial correlation using the
Schwarz Info Criterion (SIC). For all scenarios, evidence sug-
gests that the mean daily return for all Asian countries is
regarded as stationary at a zero integration I(0), with a level
of significance of less than 1% (a < 1%), which fulfils the first
condition to estimate the GARCH (1,1) model.
The following condition is to test the existence of the
ARCH effects (conditional heteroscedasticity) using the
ARCH-LM test. Results from Table 4 indicate that all stock
returns in the Asian countries show a strong presence of the
ARCH effects. The observed R-Squared and F-statistics have
a level of significance of less than 1% (a < 1%), demonstrat-
ing the presence of heteroscedasticity where the residuals
or error terms indicate conditional heteroscedasticity. Thus,
the preliminary data analysis recommends using the GARCH
(1,1) procedure to examine the mean daily returns and vola-
tilities modelling.
Ordinary least square
Table 5 reports the results of the OLS analysis for all coun-
tries, pre, during and post-HGF month. While other coun-
tries show insignificant relationships between the periods,
Singapore demonstrates a significant result at a 1% level,
indicating that there is a significant negative relationship
between the HGF month and stock return.
GARCH (1,1)
Table 6 shows the results of the GARCH (1,1) model for each
HGF period, obtained from the variance and mean return
equations. In the mean equation, the daily average returns
for each country, as represented by the constant (u) are var-
ied, with only Shanghai and Hong Kong being statistically sig-
nificant at 0.01 (a < 1%) and 0.05 (a < 5%). For the t ̶ 1
return, results are congruently varied with all countries sig-
nificant at either 0.01 (a < 1%) or 0.05 (a < 5%). Except for
Shanghai, this demonstrates that the current day’s stock
returns are dependent on the previous day’s stock returns.
In the case of the variance equation, the results revealed
that all countries have significant positive or negative vola-
tility during the HGF except for Hong Kong. Singapore and
Shanghai exhibit a significant negative effect, whilst Malay-
sia and the Philippines show a significant positive effect,
indicating that these countries tend to have lower and
higher volatility of returns, respectively, during the HGF.
The Philippines has the highest (i.e., 0.0364) significant
result of volatility during the HGF period, whereas Shanghai
has the lowest value (i.e.,
0.0168) during the HGF period.
On the other hand, with the exception of Singapore, all
countries showed a negative effect, indicating that Asian
stock markets tend to be less volatile after the HGF period.
The volatility shocks are suggested to be persistent as the
sum of estimated parameters (a1 + b1) of the lagged vari-
ance, and the lagged squared residuals in the GARCH (1,1) is
less than one (<1). Furthermore, the magnitude of the beta
coefficient (GARCH) is high for all indexes indicating that
prior rates of return take a long time to fade off. The esti-
mated value of a1 is smaller than the estimated value of b1
in all countries, meaning negative shocks do not have a
larger effect on conditional volatility than positive shocks of
the same magnitude.
Finally, the GARCH (1,1) models’ validation was again
conducted using the ARCH-LM test. The results evidently
show the non-existence of the ARCH effect for the level of

Table 5 Ordinary least square regression with dummy variables.

Coefficient Singapore Malaysia Philippines Shanghai HongKong

A (0.0027) 0.0236* 0.0031 0.1167*** (0.0566)***
L (0.0195) 0.0140 0.0421*** (0.0230) (0.0448)**
bduring (0.1425)*** (0.0353) (0.0446) (0.0035) (0.0119)
bpost (0.0503) (0.0346) 0.0419 0.00822 0.0347
Note: *,**,*** indicates significance at 10%, 5% and 1% level, respectively.
264 W.M.F. Wan Zakaria et al.

Table 6 GARCH (1,1) regression model.

Equation Coefficient Singapore Malaysia Philippines Shanghai HongKong

Mean u (0.0093)*** 0.0101 0.0108 0.1072*** (0.0329)**
λ (0.0059)*** 0.0612*** 0.0680*** (0.0316) (0.0397)*
Variance u 0.0079*** 0.0083*** 0.0667*** 0.0097*** 0.0150***
g1 (0.0046)* 0.0117*** 0.0364*** (0.0168)*** 0.0078
g2 0.0002 (0.0060)*** (0.0248)*** (0.0022) (0.0114)***
a1 0.0762*** 0.0930*** 0.1259*** 0.0594*** 0.0461***
b1 0.9037*** 0.8808*** 0.8058*** 0.9363*** 0.9328***
a1+b1 0.99799 0.9738 0.9317 0.9957 0.9789
Note: *,**,*** indicates significance at 10%, 5% and 1% level, respectively.

significance of 1%, 5% and 10% for both models. The GARCH
(1, 1) models have eliminated the presence of the ARCH
effect in the residual series.
Discussion and conclusion
The primary objective of this study is to evaluate the effect
of the month of HGF (pre, during and post) on market
returns and volatilities by analysing the daily stock returns
of five Asian countries. Although it may appear illogical in
this day and age, cultural beliefs continue to influence peo-
ple’s investment decisions across countries. In our study,
there are no clear trends in average return or standard devi-
ation for each HGF period or country. The risk-return trade-
off principle, however, is consistent in countries with high
and low average returns and standard deviations. Following
that, the OLS analysis produced negative results, with only
Singapore showing a statistically significant relationship dur-
ing the HGF period, as its stock returns dropped to approxi-
mately 0.14%. Since the OLS method ignores the ARCH
effect, an additional examination is required to test the vol-
atility of returns. Despite the fact that the regression coeffi-
cients’ results are unbiased, they can still give a false sense
of precision because the confidence intervals are too narrow
€r Sjo
(Pa €lander, 2010).
Next, GARCH (1,1) results revealed that all countries
have significant positive or negative volatility during the
HGF period except for Hong Kong. Singapore and Shanghai’s
stock indices suffer from the HGF’s presence, resulting in
lower and negative returns. These results can be explained
by the fact that their countries have a higher percentage of
Chinese populations compared to other countries with lower
populations, such as Malaysia and the Philippines. Another
explanation is probably due to the fact that investors and
fund managers are typically on vacation during the HGF
period; thus, there is no capital flight and no significant mar-
ket movement (Cabuag, 2019). However, the results of post-
HGF showed that all countries, with the exception of Singa-
pore, had a negative effect, indicating that Asian stock mar-
kets tend to be less volatile. While some empirical data
suggests that stocks perform well during the HGF month
(Ong, 2017), the empirical findings of this study imply that
stocks perform well only after the HGF month. Although
there is no adequate explanation for these findings, some
investors believe that investing in August (post-HGF period)
will have a long-term impact on their total wealth (Publico,
2021). Investing during the HGF may be more volatile and
riskier in some countries, but our findings do not support this
assertion. Consequently, concluding that the HGF had an
impact on the entire market is unconvincing. Investor behav-
iour during the HGF is not solely due to their fear of investing
but is also influenced by other factors and anomalies.
Finally, the ARCH and GARCH coefficients have high summa-
tion values, indicating that they are significant (i.e., close
to 1). As a result, prior shocks and variances significantly
influence the current variance of all market returns, and the
conditional variance equation estimates show volatility per-
sistence.
To conclude, this study contributes to the existing body of
knowledge regarding the HGF and stock returns by examin-
ing new perspectives on behavioural research. This study’s
findings can help investors and traders invest in the stock
market, particularly in countries where the HGF is practised.
However, because this study is limited to GARCH (1,1),
future researchers should extend the methodology to other
GARCH families, such as exponential generalised autoregres-
sive conditional heteroscedasticity (EGARCH) and threshold
generalised autoregressive conditional heteroscedasticity
(TGARCH) and evaluate the robustness of the model. Fur-
thermore, conclusive results can also be gained by conduct-
ing a survey and analysing the psychological traits of
investors in relation to HGF.
Acknowledgement
The authors acknowledge the financial support of the Bestari
Research Grant Phase 2/2020 Universiti Teknologi MARA
Cawangan Johor.
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