Testing the Significance of Calendar Effects

This paper studies tests of calendar effects in equity returns. It is necessary to control for all possible calendar effects to avoid spurious results. The authors contribute to the calendar effects literature and its significance with a test for calendar-specific anomalies that conditions on the nuisance of possible calendar effects. Thus, their approach to test for calendar effects produces robust data-mining results. Unfortunately, attempts to control for a large number of possible calendar effects have the downside of diminishing the power of the test, making it more difficult to detect actual anomalies. The authors show that our test achieves good power properties because it exploits the correlation structure of (excess) returns specific to the calendar effect being studied. We implement the test with bootstrap methods and apply it to stock indices from Denmark, France, Germany, Hong Kong, Italy, Japan, Norway, Sweden, the United Kingdom, and the United States. Bootstrap p- values reveal that calendar effects are significant for returns in most of these equity markets, but end-of-the-year effects are predominant. It also appears that, beginning in the late 1980s, calendar effects have diminished except in small-cap stock indices.