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Calendar Effects in the Portuguese Mutual Funds Market

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Calendar Effects in the Portuguese Mutual Funds Market Calendar Effects In The Portuguese Mutual Funds Market Márcio Daniel Pereira Barros [email protected] Dissertation Master in Finance Supervisor: Prof. Doutor Júlio Fernando Seara Sequeira da Mota Lobão September 2015 BIOGRAPHIC NOTE Márcio Daniel Pereira Barros, born on the 20th of December 1992, in Valença, Viana do Castelo. In 2010, he enrolled in a Bachelor in Economics in FEP – School of Economics and Management, from which he graduated in 2013. During the same year, he entered in the Master in Finance in the same institution, having concluded the curricular year with an average grade of 15. In the course of his academic years, Márcio was also member and part of the Executive Board of AIESEC in FEP. In 2015, Márcio joined IBM International Services Centre, in Slovakia, where he currently has the position of Financial Analyst. i ACKNOWLEDGEMENTS Firstly and most importantly, I want to thank Professor Julio Lobão, for his support since the beginning; this work would not be possible without him. I am deeply grateful for his patience, guidance, share of knowledge and constructive feedback. I also thank all my family for their total support and concern, especially from my parents. Last but not least, I would like to highlight all the motivation and help provided by my closest friends, who directly or indirectly have contributed to the accomplishment of this goal. ii ABSTRACT: There is a wide range of studies regarding the calendar effects, however very few of those studies are applied to the mutual funds’ performance. This study aims to search the existence of calendar effects (also known as calendar anomalies) in the Portuguese Mutual Funds Market. Since mutual funds can contain other securities besides stocks, it becomes relevant to study this market, filling a lack found in the literature for the Portuguese markets. Additionally, calendar patterns can be helpful for consultants and managers, potentiating their performance; and also for individual investors since they can try to exploit these anomalies. Our study analyses a sample of the daily shares’ values of the Portuguese mutual funds from 2002 until 2012 and the effects studied are the following: Turn of Year Effect; Turn of Month Effect; Weekday Effect; Holiday Effect; September Effect. We have found some evidence for the Turn of Year Effect and strong evidence for the existence of a Turn of Month Effect. Likewise, there is some evidence that the Holiday effect is also present. Our findings reveal that this market has some lack of efficiency, since these effects could have, in fact, been predicted and they could have given a return of 6% (Turn of Year) or even 26% (Turn of Month). Keywords: Calendar effects; anomalies; Portuguese mutual funds; seasonality. iii INDEX ABSTRACT ................................................................................................................................ iii 1. INTRODUCTION .................................................................................................................... 1 2. LITERATURE REVIEW .......................................................................................................... 5 2.1. Calendar Anomalies ........................................................................................ 5 2.1.1. Turn of Year Effect ............................................................................................. 5 2.1.2. Turn of Month Effect .......................................................................................... 7 2.1.3. Weekday Effect .................................................................................................... 7 2.1.4. Holiday Effect ...................................................................................................... 9 2.1.5. September Effect ................................................................................................. 9 2.2. Calendar Anomalies in Mutual Funds ......................................................... 10 3. DATA AND METHODOLOGY .............................................................................................. 12 3.1. Collection of Data and Sample ..................................................................... 12 3.2. Methodological Aspects ................................................................................. 19 3.2.1. Turn of Year Effect ........................................................................................... 20 3.2.2. Turn of Month Effect ........................................................................................ 21 3.2.3. Weekday Effect .................................................................................................. 21 3.2.4. Holiday Effect .................................................................................................... 22 3.2.5. September Effect ............................................................................................... 22 4. EMPIRICAL RESULTS ......................................................................................................... 24 4.1. Turn of Year Effect ........................................................................................ 25 4.2. Turn of Month Effect .................................................................................... 27 4.3. Weekday Effect .............................................................................................. 29 4.4. Holiday Effect ................................................................................................. 34 4.5. September Effect ............................................................................................ 36 4.6. Calendar Anomalies Applied to Stock Funds ............................................. 37 5. CONCLUSIONS .................................................................................................................... 39 REFERENCES .......................................................................................................................... 41 ANNEXES .................................................................................................................................. 47 iv INDEX OF FIGURES Figure 1.1 - Net Assets Of Mutual Funds WorldWide and in Europe, in the period 2003- 2013………………………………………………………………….………………..…2 Figure 1.2 - Evolution of Portuguese Mutual Funds Market, in the Period 1992- 2012………………………………………………….………………………………..…3 Figure 3.1 - Segmentation of Assets Under Management of Portuguese Mutual Funds Market, by Managing Institution, in 2012………………………………………………13 Figure 3.2 - Categorization of Portuguese Mutual Funds Market, in 2012, based of Assets Under Management……………………………………………………………………..14 v INDEX OF TABLES Table 2.1 – Similar Studies in Stock Markets and Mutual Funds………………………..11 Table 3.1 – Descriptive Statistics of the Sample, by Categories and by Management Entity …………………………………………………………………………………...16 Table 3.2 – Average Returns of the Sample, by Categories, by Management Entity and by Year …………………………...………………………………………………...…..17 Table 3.3 – Number of Observations of the Sample, by Categories, by Management Entity and by Year …………………………………………………………………………….18 Table 4.1 – Turn of Year Effect ………………………………………………………...25 Table 4.2 – Turn of Month Effect ………………………………………………………27 Table 4.3 – Weekday Effect (Monday) …………………………………………………29 Table 4.4– Weekday Effect (Tuesday) …………………………………………………30 Table 4.5 – Weekday Effect (Wednesday) …………………………………………......31 Table 4.6 – Weekday Effect (Thursday) ……………………………………………….32 Table 4.7 – Weekday Effect (Friday) …………………………………………………...33 Table 4.8 – Holiday Effect ……………………………………………………………...34 Table 4.9 – Holiday Effect (Segmented by Holiday) …………………………………..35 Table 4.10 – September Effect ………………………………………………………….36 Table 4.11 – Calendar Anomalies Applied to Stock Funds ……………………………..38 vi LIST OF ABBREVIATIONS APFIPP: Associação Portuguesa de Fundos de Investimento, Pensões e Patrimónios CA: Crédito Agrícola CMVM: Comissão de Mercado de Valores Mobiliários DAX: Deutscher Aktienindex (German Index Fund) EFAMA: European Fund and Asset Management Association ESAF: Espírito Santo Activos Financeiros FEI: Fundos Especiais de Investimento FPA: Fundos Poupança Acções FPR: Fundos Poupança Reforma GDP: Gross Domestic Product INE: Instituto Nacional de Estatística NYSE: New York Stock Exchange OLS: Ordinary Least Squares TOM: Turn of Month TOY: Turn of Year vii 1. INTRODUCTION Since the work of Fama (1970) about the Efficient Market Hypothesis, the debate over this issue has been developing exponentially, given place to the birth of a new paradigm (or even subject) in that field, the Behavioural Finance. The latter, apart from the paradigm previously established, defends that economic agents are not fully rational and that there are limits to arbitrage and thus markets will not be efficient. If this is true, then there will be a mispricing and the actual returns will not be the same as the expected returns, this is, there will be abnormal returns (either negative or positive). Given that, an anomaly is referred as a persistent and well known mispricing, as defined by Singal (2004). Hence, each calendar anomaly is also a persistent and well known mispricing, because returns seem to be correlated with some specific periods of the calendar and not only with economic and financial variables. Knowing this, a lot of studies have been carried during the last decades and they had found empirical evidence of this type of anomalies, however the majority of the studies is applied
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