Seasonality, returns and volatility on the Stock Exchange of Mauritius

Abstract

This article investigates the effects of any seasonality on stock market returns and volatility on the Stock Exchange of Mauritius. A standard GARCH model was used on daily SEMDEX returns from 1998 to 2006. The results obtained indicate that the return series are leptokurtic, indicating a higher peak and a thicker tail than a normal distribution. Also, the mean returns on Fridays seem to be the highest while average returns on Mondays turn out to be insignificant. Finally, significant effects of weekdays were found on the conditional variance on the stock returns.

Notes

¹Based on the studies of Jaffe and Westerfield (1985), Browers and Dimson (1988) and Lakonishok and Smidt (1988).

²Based on the studies of Mandlebrot (1963), Fama (1965) and Connolly (1989).

³Essentially, the SEM has been trading on a daily basis for the full year as from 1998.

⁴See Engel (1982), Bollerslev (1986), Bollerslev and Wooldridge (1992).

⁵According to Brooks (2004), a typical GARCH (1, 1) is sufficient for financial time series and it is very rare to find higher order of GARCH models in the academic finance literature.

⁶Agarwal and Tandon (1994), Keim and Stambaugh (1984).