Do anomalies truly exist in developed and emerging markets?

Michelle Murray Elm Dapaah-Siakwan

Student thesis: Master thesis


In this paper I test if the following anomalies existed; day of the week, month of the year and momentum anomaly. Therefore the main focus was to test for their existence and only briefly discuss the potential reasons underlying these anomalies. The study looked at 2 developed and 2 emerging indices which were the S&P 500, KAX ALL, CSI 300 and JSE FTSE Africa All indices. I considered both developed and emerging indices because I wanted to see if the anomalies may have disappeared in developed markets and if so, could there be evidence of the anomalies in the emerging market. The day of the week effect showed that the for the S&P 500, KAX ALL and JSE FTSE Africa All indices there was an anomaly present in their full time period but their sub periods showed that in more current time this anomaly faded away and disappeared all together. Only the smaller sample size of the CSI 300 index showed signs of the day of the week anomaly still being present. Similar results came from the month of the year analysis. Once again it was clear that the anomaly was disappearing in more recent sub periods for the S&P 500, KAX ALL and JSE FTSE Africa All indices but the CSI 300 index contained a month of the year anomaly. The last anomaly was the momentum effect and the results from this analysis were more widely spread. The S&P 500 index exhibited a strong trend where the momentum anomaly disappeared after 2001. The CSI 300 index showed very little significant values overall and also had no anomaly present in its data. The KAX ALL index and the JSE FTSE African All index on the other hand showed that momentum strategies produced significant returns and thus the momentum anomaly was prevalent for these indices. To finish the study an analysis was carried out to see if liquidity and size effect could explain the momentum anomaly returns. For the emerging indices these effects could not explain the momentum returns but for the S&P 500 index there were patterns of small firms and illiquid stocks contributing to the momentum returns and the KAX ALL index had patterns of large firms and liquid stocks adding to the momentum returns.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2013
Number of pages80