Literature Review on Holidays and the Stock Market
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The Calendar Effect
Calendar holidays always cause an effect on overall condition of the stock market. Same situation happens to the Karachi Stock Market. The predefined calendar closures always affect the overall situation and index of the stock market. The holidays due to many different reasons cause a great divergence generally in market index. In general, it has been noticed that almost every nation faces a great calendar effect on its stock market. It has been discovered as according to many of researchers and scholars that the days and months mainly affect the circumstances and the position of the market volume. Since many decades, the researchers are trying hard to get the best trends about the overall market influence. Through many procedures and research work they came to know that normally the calendar's overall effect has been same through many years. The calendar effects are depicting a same manner since last many years. Much wealthy returns are noted in the month of January. (Thaler 1993) Although we cannot directly link the local market with an international one, but the international situations definitely cause a great impact on Karachi Stock Market.
The Role of Stock Market in an Economy
It is very true that the strength of any country or its economy is greatly depended on that country's stock market. If the stock market is going good and contributing its share well in the fulfillment of the economy, then a country can proceed towards better economic conditions. Otherwise it's difficult to improve economy if there will be no business in its stock market. Shiguang (2004) stated that the stock market never causes a direct influence over any community except that a market going through its worst scenario can damage the prosperity and prestige of a nation, which is not beneficial for the nation's overall economy. It means that the overall condition on index table tells us some very clear economical, financial, and political and many such social conditions, which cause some direct impacts. More over it can be said that the influence in stock market manages the overall condition of the business. The economical values of a country may get worst reputation to closures. As holidays mean no business and no activities mean a lack of investor's interest.
The Holidays and their Effects
The point of view about holidays vary from researcher to researcher and most of them assumed that only such holidays should be considered which are not weekends as the it has been seen that the economic disaster of Kenya caused a complete closure even the disaster was not considered to be a predefined almanac effect. Moreover, other religious and some cultural holidays also cause a great effect on the stock market (Gallo 2000). Hence the overall calendar effects too much on a stock market.
Past study about US market shows, that holidays affect the overall condition of the stock market but here the question arise that is it so at present. According to Harvey (1995) the statistical values are changing day by day and people and market don't suffer a lot with predefined holidays. But it's a research from united state's point of view. Pakistan's people have a different attitude towards different things. Here another thing is much noticeable that whether the current position of stock market and its results remain unchanged or not, after similar holidays trend. A single day closure affects a lot on over all condition of the stock market and may cause a big dip. It means that the business suffers if it is either a predefined closure or an unpredictable one. Different reasons for closure are defined by different scholars and authors. The definition of a holiday does just not only mean Saturdays and Sundays but more over it also consist of different closures that occur on different events throughout a calendar year.
A man earns more who even works on Saturdays and Sundays then those who go on a weekend to enjoy their holidays. (Suntum 2005) Same is the case with the market; if the markets set out on a long weekend or even short or half days on Fridays then definitely whole of the market will suffer a lot and as a result of which, all the business activities will suffer. Definitely, the man on long weekend earns less as compared to one who even works on a non working day without any daybreak if both are on same level of earning. Different quantitative analysis are done by (Wung 1994) which show that the over all, holidays cause a declining effect on stock market and it is also considered that a straight decline seems when ever business closes, even if it's a weekend, national holidays or whatever the circumstances are. Different analysts also consider it to be great dips in market after unpredictable closures and the market index falls badly and causes great loss. It is verified that market condition seems well before that predictable or unpredictable vacation but market opens with low index rating and investors seems to be inactive, as it's a trendy technique. So simply we can say that the closure by any mean causes a great damage to market's reputation. It's an international trend that the countries' economy and its market suffer a lot or even demolish if its calendar has too many red marks (holidays).
Turn of the Week Effect
According to Dimson (1988) it's an old tactic to think that the market boom will not be of such value as it's before weekend. Normally such deliberation appears among different scholars that market goes in a decline condition after weekends but Dimson totally refused the theory, moreover in later research and reverences Previts (2006) proves it to be true that in normal trading days the market floats well as compared to weekends and after weekends the market declines. This may be economic and conditional depended and may vary from country to country. It can also be proved by Cataldo (1998) who by utilizing different comparisons confirmed that the trend is true. He also worked on this theory by using different static tables. The overall conditions and analysis shows that a great affect is seen on stock market after the reopening on Mondays, so weekends cause a big immerse and the overall condition of the business goes through a bad phase on Mondays.
As discussed above, normally the Fridays seem to be the half day for market and many of the businesspersons look very tired and show lack of interest in business. Even on Mondays, after enjoying their long weekend, the usual efficiency of the market is not seen. Cataldo has supported this fact by showing that negotiators do tend to make buy recommendation, and that odd-lot dealings tend to be net sales, and also stating that odd-lot volume is mainly high and institutional volume is mainly low on Mondays. Hence it seems that the individual sellers prefer to sell on Mondays because of lack of liquidity problems faced by the market. Another major explanation behind this negative fall is that the stock market shares touches the skies on Friday but vice versa the start of Monday seems to be too cold or in other words we can say that the overall index does not shows a good position of the market and situation remains constant till the end of the day. Including all the facts, another major fact should be kept in knowledge that the debtors use their settlement terms on Fridays, in order to avail two days of interest free loan and similar benefits in buying. This causes a rapid growth in business and Friday becomes a good day. Major decline also occurred due to removal of incentives hence the increase in business on Friday is due to the mentioned circumstances. Thus sometimes on Fridays, KSE goes well as it makes a great deal of business and seems much handsome (Abdullah 1997)
Contrary to above reviews, an adverse and very different opinion came to the market by useful research of Mustafa (2008). According to him such calendar effect is now a days totally different. The market goes well in business as the week starts but move towards the declining position as the week ends. The situation and the happening are totally different from trendy international market. Same situation is supported by Ali and Mustafa (2001), who indicated the abnormal behavior of Karachi stock market comparatively to the other stock markets. The abnormality is because of different cultural and mind setups. The trend changed after the year of 1990. Conditions now seem to be similar for next many years, as the change is entirely dependent on the governmental policy about the weekend holidays.
The turn of the month effect is well defined by Popian (2006) in volume 318 of his book Behavioral Finance and Wealth Management. He defines the turn of the month as one of the major counts amongst the calendar effects. It simply refers to a temporary increase in stock market. There are number of major reasons behind such variation. The major part of the story shows that many of the pensioners prefer to reinvest in their pension schemes to get better returns. The situation here in Karachi stock exchange is not quite similar because of poverty in the country. Many of the investors and pension holders withdraw their wealth as soon as they can. No analysis has been conducted yet on such hot issues in market. The Karachi market keeps low on the end of the month as many of the investors changes their stocks into monitory values to pay off their debts. The common example is their current overdue like employees' salaries.
Turn of the Year Effect
January seems to be the best investment period for US states. As many of the individual get their leave encashment and therefore they love to invest more. Another reason for excess buying is the allotment of the shares at much lower values without gaining much margin for tax purpose. (Shleifer 2000). Such effect is also not of great importance in Pakistan. The main and major events of Christians are not celebrated so well in Pakistan. The leave encashment and other such allowances are not fixed as well. Hence, it is difficult for investor to invest any more. Therefore, the turn of year effect's international market is much better as compared to local Pakistani stock market not even the largest home market like KSE 100.
English Calendar Effects
As weekend affects a lot on market culture, same situation occurs with different national holidays. Pakistanis become much happy and enjoy most of their holidays. As stock market is attached with people so if they are not interested to work how can the market run? Many such holidays happen to come during a calendar year and Pakistani people love to have days off. Allama Mohammad Iqbal is the national poet of Pakistan and is buried in Sialkot. His contributions in the world of poetry are marvelous and there is no doubt about his contributions towards Pakistan's creation, same as the most major contribution is from Quaid E Azam muhanmmad Ali Jinnah who is considered to be the founder of Pakistan. Here comes the all four holidays as 2 of their birthdays and 2 of their death days. Another major event is Independence Day 14-August. All these three holidays are most important amongst Pakistanis and they must avail these festivals. 23rd March is also one of the important days in the history of Pakistan as it is known as Pakistan's Resolution Day or Youm-e-Jamhoriat (Republic Day) and all the government and private sectors celebrate that day very well. Then after these many holidays, on 6th September, Pakistanis celebrate their national defense day as at that day the defeated Indian army. This day is also celebrated as the memories of martyred soldiers in 1965 war. Then on 5th February Kashmir day is celebrated as well. (Malik 2006). Such heavy rain of holiday's dose affects the stock market vigorously and still many other non federal vacations are omitted as KARACHI STOCK EXCHANGE doesn't lie under the federal government so all the provincial issues and holidays also affect KARACHI STOCK EXCHANGE 100 as well. Holiday of Christmas is covered with Quaid-e-Azam's birthdayas as both fall on the same day. No other holidays are announced on national level. Other international days are also well supported and celebrated in Pakistan, such as Labor Day. Some other events like valentine day, April fool are losing their popularity amongst Pakistani people and that never causes a business failure. (Malik 2006)
Islamic Calendar Effects
Muslims have strong binding with their religion and that is why they celebrate all their religious festivals with great enthusiasm. Many different festivals are celebrated throughout the year accordingly (Malik 2006) Eid ul Fitar and Eid ul Adha are the two major events or religious festivals on which every sort of business is kept low in Pakistan. In the holy month of Ramadan business on stock exchange suffers a lot as people having fast are not mush interested in any other activity and their mind diverts to religion more as compared to normal days. After Ramadan, three mandatory holidays are for Eid ul Fitar and same with Eid ul Adha but this not just the matter of 6 days, as people take more time to be back into their normal routine, hence it affects greatly on overall market indexes. No business no rise in index and hence market is kept with a bad index and starts up with a worst one. Eid ul Fitr and Adha cause a great upset in over all KARACHI STOCK EXCHANGE business and same is the case with other religious holidays like days of Muharram, Prophet's Birthday Miraj Shareef, and Islamic New Year etc. In addition, many holidays are announced on national level during which no business activity takes place. In non-Muslim's festival, there is Christmas for which holiday is announced all over the country. (Kogan 2004)
Some other extra festivals are also attached with Sindh as tributes to different sofi's are popular amongst Sindhi majority. Hence it dose cause a decline in business activity through which business market endure heavy losses on daily bases. Population of Sindh is much involved in sufiism and that's why it causes closure of business many times, different sufi like Abdullah Shah Ghazi and Shah Abdul Latif's “Eurs” are celebrated with great religious intention (Talbot 1998)
Other Cultural Holidays
Sindhi cultural day and as such cultures are getting more popularity on day to day bases and a proper holiday is also being announced by local government many times. It dose impinge on the economic and business condition of the stock market. So many cultural holidays are celebrated here at Pakistan with great enthusiasm and it causes a closure of market, which strikes the business well. Not only this, but the Pakistani people are also influenced by British community and that's why they try to celebrate each British event. Their influence can be measured through the book by (Din 2006) in which he tells the whole story that why Pakistanis are influenced by British community. Hence many cultural celebrations occurring on different time and months of the year cause too many null days. So not only the international festivals marked on a calendar changes the atmosphere of the market, but the cultural celibrations also contributes well to make holidays longer. Such so many cultural festivals are most popular amongst Sindh government hence cause a direct effect on business. (Fabry 1995)
The political Dates
Some how it seems to be quiet amazing that the political minutes effects the situation of the market. In Pakistan, many political parties set their meetings which affect the market very badly. Whatever the continent is, whatever the country may be, the political issues always influence the market structure and cause a great disruption in market condition. Pakistan is also struggling a lot with such political issues as the current policies of government and the overall situation of country's affairs are not providing a sound environment for business. The political issues set a negative impact on prestige of a nation and its overall economy. Karachi market is also suffering from such political issues, which stops an investor to invest. Politicians announce strikes to show their power and the war between different parties causes the main reasons behind the closure of the market. In Karachi major business losses incur just because of strikes. Industries have suffered an estimated overall loss of 350 million RKR to 400 million PKR, according to chairperson of commerce. Karachi remained closed for more than ten days which cause a great loss in industry and it also affect the stock market harshly. Closure of this market not only damage business in Karachi but also cause a great loss of about 30 billion. Import and export was also damaged so much in that era. Hence such strikes cause an unpredictable closure in market. (Safdar 2009) Hence it has been noticed many of the times that the annual ceremonies and different predefined political events cause detraction in overall business values. On 27th December 2007 a great political leader of PPP Benazir Bhuto was killed while leaving a campaign rally. The PPP prime minister announced 27th December as a public holiday. (ANI 2008)
Pre holidays always make a major variance in stock market, so normally market touches its highest before the day of holiday and remains low after holidays. If holidays extend due to any reason for instance it may be unfavorable climate, political issue or any other unpredicted disaster, the market struck at its lowest and causes a great decrease in overall index. (Gallo 2000) These type of situations and happenings are common in Karachi stock market. The market closure due to climate is however not as much effective as compare to other factors. Karachi stock index had suffered many times due to unfavorable political issues.
Seasonal Effect on Stock Market
Stock markets attract a great seasonal effect through which companies and businesses suffer from loss of returns on different times. The evaluation of the seasonal effect of any stock market has been very influential, and it has been seen that business on stock exchange attracts great influence by different seasons. Different seasonal tests are been conducted to evaluate the influence caused by such seasonal change. (Sheguang 2004) .But in Karachi, the overall atmosphere is quite good and it does not need to close the business. The overall climate of Karachi is mostly steady as it lies on costal belt and Karachi is considered to be one of the most suitable places at lower Indus side. So the market of Karachi dose not suffer much or we can say that it happens once in a blue moon when there are some seasonal effects of stock market of Karachi through climate change. So there is no seasonal effect on Karachi stock exchange as the typical weather conditions are too much favorable and helps a lot. (Raza 1971)
Most of the natural disaster occurs without a prior notice. But the Moon-Soon season and floods due to such season causes a closure in stock market. Karachi wass also affected very badly in the last moon-soon season in 2010 and market faced a loss in overall index. It was a predicted disaster which caused a decline in market activates. Although, no deluge touched the Karachi city, but the rumors did well and affect the market volume. Karachi market suffered too much as many investors withdrew their holdings which caused a decline in market position.
The overall calendar effect on Karachi Stock Market differs in many situations. The market has got great influence due to Islamic calendar. The reason behind the scene is the majority of Muslim community and different clan between this community, like Sunni and Shias etc. The other seasonal and annual effects do not cause a great persuade on the market's business as the climate of Karachi is very positive towards business activities. Whereas the month and week effect varies it we compare it with international market.
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