An analysis of monthly stock market volatility: the empirical evidences from Colombo Stock Exchange in Sri Lanka

Abstract

Empirical studies have revealed a broad variation of the seasonal anomalies in the stock market. The existence of the stock market anomalies help investors to earn abnormal returns and they are playing significant importance for both investors and the researchers who are currently engaging in financial market decision making. However, the concept of Stock Market Anomalies is still novel to a developing country like Sri Lanka where the financial market was not relatively dynamic. As a result the study examines the monthly effect with respect to the stock price and the return in the Colombo Stock Exchange (CSE) using the All Share Price Index (ASPI) during the period of 1st of January 2005 to 31st of January 2019. The monthly effect is tested using Ordinary Least Square (OLS) Regression model. The results of the study indicate the presence of a statistically significant positive effect on stock prices in June and October as well as significantly negative effect during the months of May and December. Further, the study identified a significant negative May and December effects for the stock returns in CSE during the sample period. Findings of this study will help both Sri Lankan and international investors to make profitable investment strategies and to plan their investment portfolios.