Detecting the January Effect in the Egyptian Stock Market

Calendar anomalies are the most popular anomalies specially month of the year or January effect. January effect refers to the theory that monthly average stock market return is highest in January than any other month of the year. The importance of detecting this anomaly is that investors can capitalize on knowing this information to achieve abnormal returns. There is lack of research on January, or monthly, effect in the Egyptian stock exchange, even for the existing ones results are contradicting. This research objective is to detect January effect in the Egyptian stock exchange over the period from 26 of July 2004, to 31st of January 2009, on both the EGX30 general index and the companies that constitute it as of 1st of February 2009. The research will use two models to test January effect. The first one is the basic model that has been used widely to detect January effect worldwide. The second model is the extended model adopted from Agrawal (1994) which introduces the effect of the Dow Jones Industrial Average index DJIA returns on the EGX30 returns. The research examines the January effect on the EGX30s’ companies using an extended model to the basic one after introducing the effect of both the security’s trading volume and the return on the EGX30. Findings supported the absence of January effect on the EGX30, and its companies. However, it was detected that December is the month of the year on the EGX30.