Stock return seasonality in the emerging Malaysian market
Abstract
This study investigates the existence of seasonality in Malaysia's stock market. The
study uses the monthly return data of the Kula Lumpur Stock Exchange's Composite
Index and EMAS (Exchange Main Board All Share) Index. After examining the
stationarity of the two returns series, we specify a combined time series and regression
model to find the monthly effect in stock returns. The study reveals evidence of the
existence of seasonality in stock returns in Malaysia. The coefficients for several
months are statistically significant. The average return for December is positive, and
it is statistically significant in the case of the Composite Index. A positive December
returns rules out the tax-loss selling hypothesis. In Malaysia, there are no capital gain
taxes for either resident or non-resident investors. The evidence of seasonality implies
that the Malaysian stock market is not informationally efficient. Hence, investors
may be able to time their share investments to improve returns.
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