Holy Week effects on the stock market

We have shown in a previous article that calendar anomalies, commonly termed the holiday effect, exist in the Philippine equities market (refer to Santa Claus rally and the January effect – Philequity Corner, Dec. 26, 2005). For example, joyous and festive holidays such as Christmas have significantly positive effect on the months of December and January. Meanwhile, holidays such as the Chinese Ghost month, which is a period for appeasing wandering spirits, usually affects the market negatively. We now extend our study to include the impact of the Holy Week holidays on Philippine equities.

Holy days festivities: International evidence

A study by Frieder and Subrahmanyam in the Financial Analysts Journal (2001) showed that the Jewish High Holy days had a significant impact on the US equity market. On both Rosh HaShanah (which signifies the Jewish New Year) and Yom Kippur (the Day of Atonement), volume is down significantly. Returns were also found to be significantly positive around Rosh HaShanah which is consistent with the notion that stock market returns reflect the festive nature of these occasions. Evidence was also found of significantly negative returns after Yom Kippur in the second half of the sample period, which accords with the idea that the market reflects the solemn nature of this occasion. Their findings are consistent with the notion that Jews play a major role in equities trading, so that their sentiment around Jewish holidays has a significant impact on the US equities market. Overall, the results are consistent with the view that mood is a viable explanation for some market movements.

Similarly, a study by Oguzsoy and Guven (using data from the Istanbul Stock Exchange) revealed that average return two days prior to the feast of Ramadan and the feast of Sacrifice is about seven times higher than the average return on other days.

Meanwhile, a recent study by Abadir and Speirdijk (2006) found that festivity effects exist during Islamic holiday of Ramadan and Chinese New Year. Focusing on nine markets: four Middle East markets (Egypt, Jordan, Pakistan, Turkey) and five in the Far-East (Malaysia, Singapore, China, Hong Kong, Taiwan), they found that returns were negative before the festivities as investors liquidate positions and stay on the sidelines while positive after the festivities as re-investment take place.

Impact of Holy Week on Philippine equities

In the Philippines, the Holy Week (aside from being a period of prayer, repentance and solemnity) is a much-awaited occasion when Filipinos go back to their home provinces and spend time with their relatives. Some also take this as opportunity to take a long vacation as trading in the Philippine Stock Exchange (PSE) is suspended during Maundy Thursday and Good Friday.

In the table below, we analyze how the Philippine equities (as represented by the PSE Index) behaved in terms of returns and volume activity during the period of Holy Week as compared to the other days of the year. Intuitively, the analysis should show that returns and volumes should be relatively lower during Holy Week as investors lighten up on positions for the long holiday.

Out of the 20 years in the sample, there were only six instances that the Holy Week returns were lower than that of the rest of the year. During the period 1987 to 2006, the average daily return during Holy Weeks was higher at .61 percent compared to 0.05 percent return during the other days of the year.

Meanwhile, out of 20 years, only 10 instances showed lower volume activity. The average daily volume change during Holy Weeks was higher at 25.72 percent compared to 22.29 percent average change during the other days of the year.

Thus, our analysis above shows that there is little evidence that show that the period of the Holy Week significantly impacts the trading in the PSE. In fact, contrary to popular belief, Holy Week returns were much higher than that of the rest of the year, while volume changes were slightly larger.

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