SEASONAL EFFECTS OF SIMEX FUTURES CONTRACTS

Abstract

Some of the unresolved anomalies in finance literature are the 'day-of-the-week' and the 'month-of-the-year' effects. Whether such effects exist in futures market are of particular interest because unlike the stock market, where seasonalities may be explained by settlement procedure and specialist trading, the margin rules and 'open outcry' system of the futures markets should not facilitate the existence of such phenomena. Many of the empirical studies on seasonalities were conducted on common stocks, with only a handful applied to futures contracts. Moreover, studies on seasonalities in the futures markets have focused solely on the US markets. In these markets, the average returns for each day of the week and month of the year were found to be significantly different from each other, thus providing strong evidence of seasonality. As in the stock markets, the finding is accordingly termed an 'anomaly' as it is difficult to reconcile it with the standard efficient markets theory. This study presents an analysis of the Eurodollar, Deutschemark, Japanese Yen and Nikkei Stock Average futures contracts traded on the Singapore International Monetary Exchange (SIMEX). Thus far, no seasonality study has been conducted on these SIMEX-traded contracts. The day-of-the-week effect was found to be significant in the Eurodollar and Nikkei Stock Average futures while the 'month-of-the-year' effect was significant in the Nikkei Stock Average futures only. The results further showed an increase in the presence of seasonality following the stock market crash in October 1987. The study also proposed several plausible explanations. In particular, it was suggested that the rate at which information is disseminated, degree of uncertainty and trading experience in the market could have jointly caused the presence of seasonality. Furthermore, although the results indicate some evidence of seasonality, they could not be taken as evidence of market inefficiency.