EXISTENCE OF THE PRE-HOLIDAY EFFECT: EVIDENCE FROM THE HELSINKI STOCK EXCHANGE

Abstract

This thesis provides further evidence of the pre-holiday effect in stock returns by examining the existence of the pre-holiday effect in the Finnish stock markets at the market and industry levels. Indices which are chosen to present both the market and the industry are OMXH CAP-index for market and OMXH Banks, OMXH Industrials and OMXH Health care -indices for industry. The study approaches the question of the pre-holiday effect form three different perspectives. Firstly, the influence of the U.S. national holidays is investigated. Secondly, the effects of the Finnish national holidays are examined and finally the effects of the global holidays are studied.

The existence of the anomaly is studied in two different pre-holiday subsets. First subset consists of the last trading day before the national holiday and second one covers the five trading days before market closing. The market data covers the years from 1991 to 2007 and the index data from 2000 to 2007.

This paper documents unusual return patterns for different indices before holiday closings. For OMXH CAP-index returns were observed to be 16 times higher during last trading day preceding the national holiday and 28 times higher during the last five trading days before the market closing. For different industry indices the differences in returns were not very radical between the pre-holiday and the ordinary days. However higher pre-holiday returns were observed also in different industry indices during last trading day before market closing.

From individual holidays the global and the Finnish national holidays seemed to have biggest impact on the pre-holiday returns. In addition to these Sharpe and Sortino ratios were calculated to provide some support for the results of this study.