Seasonality Effects on Amman Stock Exchange: Return and Volatility Applied Study on Sectoral Indices

Abstract

The main aim of this study is to test the presence of the day of the week effect and the month of the year effect on the return and volatility of Amman Stock Exchange (ASE) and its sectors (financial sector, industrial sector, services sector), it also aims at examining the relationship between these calendar effects with risk measured by volatility. The study used the daily closing prices of the general index and the sectoral indices of the ASE for the period from 2/1/2000 to 30/12/2009. The study used the AR(n)-Modified EGARCH(p. q) model to investigate the day of the week effect and the month of the year effect on returns and volatility. The study also adopted the AR(n)-Modified EGARCH(p. q)-M to link these calendar effects to risk represented by the volatility of returns. The study results showed the presence of the day of the week effect on both the return and the volatility for all indices, this effect also appears in the form of common seasonal pattern to some extent whether on the returns or volatility, where the highest and the lowest returns observed on Sunday and Monday, respectively, while the highest and the lowest volatility of returns observed on Sunday and Thursday, respectively. With regard to the month of the year effect, the study has revealed the presence of this effect on the returns of all indices with the exception of the industrial index, the study also showed the presence of the month of the year effect on the volatility of all sectoral indices, while there was no such effect on the volatility of general index of ASE. The study also found that the risk does not explain the day of the week effect and the month of the year effect on the returns for all indices of the study.