Day of the week anomaly (Monday Effect) – How to do it?
Day of the week anomaly or more known as Monday Effect is one of calendar anomalies in financial market. It states that the stock market returns on Monday is significantly different from other day. This anomaly is proposed by Kenneth French in 1980, and his research paper was published in Journal of Financial Economics. The appearance of Monday Effect is an evidence of market inefficiency. Yet, in French (1980) paper, he suggested an arbitrage profit or mispricing profit from this anomaly. He further surmises “Although an active trading strategy based on the negative expected returns would not have been profitable because of transactions costs, investors could have Increased their expected returns by altering the timing of trades which would have been made anyway – delaying purchases for Thursday Friday until sales scheduled Monday on preceding Friday”
Herding in financial Market: How to do it?
Remember a folk story about pied piper of Hamelin (https://en.wikipedia.org/wiki/Pied_Piper_of_Hamelin) ? Once upon a time, Hamelin town was full of rats. Yet, the pied piper has solution for this rat issue. He promised to drowned all rats and the city has to pay him 1000 golds. After mayor of Hamelin agreed, the piper played his pipe and lured the rats into Weser river, and all rats were drowned (except one rat). How? All rats HERD him because of the music. I don’t want to continue the story because it is a sad story.
This herd behavior has also occurred in the financial market. Yes, herding is the trading behavior of investor by copying the behavior of other investors. Continue reading
Women on Board Effect: How to do it?
Women on Board research is an interesting research considering the issue of gender equality. However, the role of women in firms has not extensively and empirically discussed like other corporate governance issues. Research has found that women may change the board room situation because women are more cautious than male on board in corporate decisions making (Huang and Kisgen, 2013 and Levi et al., 2013). Laura Tyson, a former economic adviser to US President Bill Clinton, recommended the improvement of board diversity to increase firm’s financial performance through the number of women on board (Tyson, 2003). Adams and Ferreira (2009) studied 1500 companies at United States from 1996-2003, and found female directors have significant impact on corporate performance of firms with weak shareholders right. They stated that female directors are more likely to monitor their committees. As the greater the gender diversity, the directors have fewer attendance problem. Therefore, this issue should be explored more in the future
Temperature Effect: How to do it?
Weather effect is another interesting research in finance. It is actually an argument for the traditional finance that relies much on rational behavior assumption. So, whenever you write problem statement for this topic, start it with the argument on rational behavior. I firstly read paper of Saunders (1993) then followed by Dowling and Lucey (2005). It really attracted me. How come weather may affect stock price? Right?
Who support it? A lot! For example, Loewenstein (2000) argues that the emotions and feelings influence our decision making process. It may dictate our long-term cost and benefits, hence, it will affect the equity pricing. The logic is simple, when it is rainy day, we tend to feel lazy compared to bright day (we tend to be aggressive). This emotion may affect our decision making. If it is rainy day, we tend to have our leisure time, meanwhile, during sunny day we tend to be rushed out (Yet, this debatable even in psychology field). Continue reading
Moon effect Research: How to Do it?
- NOTE THAT NOW I AM MORE ON BEHAVIOURAL CORPORATE FINANCE –
The moon effect research in economics and business field is interesting and intriguing. I met this topic by coincidence. That time I was solely on weather effect reading papers from Cunningham (1979) and Dowling and Lucey (2005). I remember that I prepared my manuscript for Journal of Bioeconomics, opened this journal to see its scope, but ended up with Herbst (2007) paper. It really attracted me.
When I read it, it was related to my PhD research (that time) and I wanted it to be part of my regressor. The issue is what theory to support it? How to measure it? How to rationale it? It was painstaking, but it has to be done. Continue reading
During Behavioural Accounting Workshop in Kuala Lumpur, Prof Tan from NTU addressed shocking information: “Most of accounting, economics, and management scholars have wrong conclusion in behavioural research because most of them never take any formal education of psychology”. Indeed, I do agree with that. Most papers in behavioural economics hanged the conclusion up to addressing the results. No further elaboration with psychology perspective. For example is the Role of full moon on investor behaviour. Rarely found a paper elaborate the findings with Forgas Affect Infusion Model or the Somatic Marker or other psychology literature. It just reported there is an effect of full moon on investor behaviour. That’s all. No robust discussion.
Interestingly, I found a working paper of Matthew Rabin entitled “A Perspective on Psychology and Economics”. The flow is very interesting. It starts with the potential of behavioural economics in the future, then the unrealistic assumption in mainstream economics where behavioural economics tries to fill in, and how we can use psychology to fill in the unrealistic economics assumption. Here is the review. Continue reading
There are many sceptical journals nowadays. So, be carefull when you want to submit your works to a journal. Else, you will regret it. There are many ways to detect the quality of the journal. To me, I use scopus, repec, and elsevier as the benchmark of the quality. If the journal is not listed in one of these three, I will not send it.
Another trick of me is by sending email. I send email to the editor and ask their opinion regarding my paper. Is it suitable topic for their journal or not? I can judge the quality of the editor by how the reply it. For example, I sent email to Cimate Research. The editor reply me vigourly. It indicates the quality of the journal is very good (even though my paper is not suitable for their journal).