A Study Of Month Of The Year Effect: Evidence From The Uganda Securities Exchange

Abstract

The objective of this study was to assess the existence of month of the year effect on stock market returns at the Uganda Securities Exchange (USE) for the period between 01 January 2009 and 31 December 2018. All 15 companies listed on the USE were included in the study. The study analysed the monthly closing USE All Share Index (ALSI) for the 10 year period. The researcher used quantitative data analysis methods whereby inferential statistics involved OLS regression and chi square test to analyse the data. The study established a moderate and consistent trend on average monthly returns approaching the end and beginning of the year. Nonetheless the effect is not sufficient or statistically significant enough to provide a solid basis for investment decisions at the USE. It was further established that average monthly returns recorded a moderate correlation apart from January, June and December, respectively. The study further reveals that there is very little difference in USE mean monthly returns across the months in a year. This means there is no observed seasonal pattern and investors cannot take advantage of any seasonal patterns to make abnormal profits. Several studies have been undertaken on the influence of time of month in different stock markets which have shown this as a calendar anomaly which causes the stock market returns to be notably above the average in one or more of the months of the year, January being the one singled out most. The study thus recommends the need for Capital Markets Authority to craft regulations that can enhance efficiency at the USE. These regulations should be geared towards improving the effectiveness of performance monitoring of the stock market. The study restricted itself to only 10 years and thus, it would be prudent for future researchers to do a replica of this research for a longer period to find out whether the study findings will hold. The researcher suggests that future research is undertaken in developing countries that have relatively similar stock exchange markets with that of Uganda and to cover longer periods, so that comparative analysis can be undertaken to further shed light on the occurrence of the effect of time of month in such similar contexts as the USE.