The turn of the month effect in India: A case of large institutional trading pattern as a source of higher liquidity

We examine (via parametric and non-parametric tests) the turn of the month effect in the returns of various, size-conditioned Indian stock indices, across time, in up and down markets and independent of other seasonal anomalies. We find little support for the payday and the US macroeconomic news announcements hypotheses. Instead, we show that institutional traders (foreign and domestic) significantly increase their trading volumes (on the buying side) at month end, potentially pushing prices up. There is no evidence of a similar behavior on the retail side. We suggest this to be a major cause of the observable TOM effect in India.

► Seasonal anomalies: turn of the month effect in returns in India ► Methods: EGARCH, Wilcoxon Signed Rank Test, Granger Causality ► Previously suggested hypotheses such as payday and US macroeconomic news: unconfirmed ► Supported hypothesis: a surge in institutional trading volumes at month end