MARKET ANOMALY

Market Anomaly: The Turn of the Month Effect



Market Anomaly: The Turn of the month Effect

Introduction

Market Anomaly is a practical outcome of financial results or activities that is proved to be inconsistent or uneven with the past and proven theories and literature of the asset pricing performance. It reflects the ineffectiveness of market in terms of lack of profit opportunities and market failures under asset pricing model. Once these anomalies are recorded and reported adequately in financial documents after analysis, these tend to fade, inverse and offset its effects. Therefore, this point raises the issue regarding presence of profit prospects in the past, or if it was just a situation created out of arbitrage activities or if these anomalies are only statistical results that have been attracting the consideration of specialists and scholars (Schwert. G. W., 2003, p. 938-968).

These market anomalies can be related to unjust competition, lack of marketplace transparency, and legislative affects. Calendar effects, behavioral partialities of economic factors etc. Anomalies can be Fundamental and technical. Types of fundamental anomalies are value effect, small cap effect, size effect, and volatility effect. Types of Calendar anomalies are return on stock on yearly basis or weekly basis, or monthly basis, January effect, etc. And the types of technical anomalies may include momentum effect (Schwert. G. W., 2003, p. 938-968).

We have discussed the Turn of the month effect or TOM effect of market anomaly with great detail including its trends over a certain time, its initial documentation reports and experimentation, procedure of formation, effect on market efficiency, reasons of occurrence, existing literature work available, importance to specialists and researchers, and effects on anomaly to the latest time period in this paper.

Discussion

The Turn if the Month effect

History

According to past observations of Merrill, Fosback and Hirsch, US stocks used to rise significantly at the TOM, which can also be called TOM. It was initially researched by Ariel in 1987, and documented by analyzing the effect of TOM on small and large capitalization stocks. He continued observing these stocks and documentation for the time period of 19 nineteen years i.e. from 1963 to 1981. The stock under this research was comprised of equal and value weighted indexes registered and traded under New York Security Exchange NYSE with the help of Center for Research on Security Prices or CRSP tape. The research of Ariel exhibited higher returns on stock during TOM, whereas the remaining gains in the market took place during the succeeding week of the month in the same time phase i.e. from 1963-1981. As per the research, all the fair profits took place in first half of the month i.e. FH or TOM i.e. (TOM). The stocks witnessed adverse profits in the subsequent half of the month or the remaining days in the month or ROM (Keim. B. D. & Ziemba. T. W., 2000, pp. 219).

Definition

Therefore, the TOM can be defined as a brief rise in the prices or returns of stocks during some of the few days of month in the beginning ...