The Turn-of-the-Month effect in The Finnish Stock Markets in the 21st Century

Abstract

The objective of this thesis is to investigate if the turn-of-the-month effect still exists in the Finnish stock markets in the 21ST century. The beginning of this new century is an interesting moment in time to study. Since the first of January 2002 Finland's old cur-rency the Finnish mark was thrust in to history and a new common currency of the European Union the euro was taken in use. It is important to research if the change of the currency has affected the possible existence and the strength of the turn-of-the-month-effect. The data used in this thesis is gathered from six-year period including years 2000-2005, and covering ten major stock indices from Finnish stock markets.

In this thesis to investigate the effect of an economic event on the value of the index a method called event study is used. Using financial market data, event study measures the impact of a specific event on the value of the index. For every trading day during turn-of-the-month the average residual returns are calculated and for every event peri-ods the cumulative average residual returns are calculated to find out the possible exis-tence of the turn-of-the-month effect. These results are calculated by using a regression analysis. Statistical significance of results is tested by using Student’s t-test.

The empirical results showed that the turn-of-the-month effect still exist in the Finnish stock markets. However there was major difference of the anomaly's duration and strength between the studied mark and euro time periods. Altogether it seems that the anomaly is weakened after change of the currency.