Calendar Anomalies, Market Regimes, and the Adaptive Market Hypothesis in African Stock Markets
Calendar Anomalies, Market Regimes, and the Adaptive Market Hypothesis in African Stock Markets

Summary/Abstract: Purpose: This paper examines the changing behavior of two calendar anomalies in African stockreturns – the month-of-the-year and the intra-month effects – and their implications for the adaptivemarket hypothesis (AMH).Methodology: We applied two-stage Markov switching models (MSMs) instead of the conventionalsingle state regression model. The sample period includes the daily index return of Nigerian, SouthAfrican, Mauritian, Moroccan, and Tunisian stock exchanges from January 1998 to February 2018.Findings: We found that (i) all the markets except for the Johannesburg Stock Exchange (JSE) havea higher tendency to be in bearish state than bullish state, (ii) month-of-the-year and intra-montheffects appear in one regime and disappear in another regime, and (iii) the behavior of calendaranomalies is affected by market conditions and conforms to AMH rather than the efficient markethypothesis (EMH).Practical Implications: We present that (i) calendar anomaly is a characteristic that changes underdifferent regimes or market conditions in African stock markets, (ii) active investment managementmay yield profits for market participants, depending on the market conditions and the anomaly inquestion, and (iii) the right approach would be for investors to consider each market with its ownpeculiarity even when they are in the same continent.Originality/Value: The sensitivity of the month-of-the-year and the intra-month effects to marketconditions has not been documented in African stock markets, especially with the use ofregime-switching models

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