A Study On The Holiday Effect Of Shanghai Stock Index

In 1970, the Efficient Markets Hypothesis(EMH) was purposed by Eugene Fama who thought that investors can only get the normal rate of return no matter how to select the investment portfolio in an efficient market. According to this hypothesis, the investors will use the known information quickly and efficiently when doing the deal and these known factors affecting the stock price has already been reflected in stock prices. That means, it is no use doing the technical analysis for stock.However, with the development of financial market, more and more market anomalies were proved to exist. Many financial experts began to question the efficient market hypothesis. Thus, the efficient market hypothesis was set to face enormous challenges. This phenomenon shows that some investors can get excess returns through a certain way in the stock market. This kind of phenomenon is called market anomalies. The holiday effect studied by this paper is one of the numerous market anomalies. Whether holiday effect exist in China’s stock markets just as western countries do. How it is performed if there is holiday effect. It hopes to provide some theoretical reference for investors through a series of studies on holiday effect. At the same time it is better to understand the operation rules on China’s stock market.Based on the effective market hypothesis and the study about the holiday effect at home and abroad, the Shanghai 180 index from January 2,1997 to December 31,2013 was chosen as the research data. The festival are Spring Festival, Labor Day and National Day. The model is GARCH model, the expansion of the ARCH model. Some virtual variable are added on the model in order to do the study on qualitative variable. After studies the performance of holiday effect in different trading range which are 10 days,20 days,30 days,40 days,50 days and 60 days, the holiday effect between different holidays are studied. This paper also takes into account the different quarter to study whether the quarter will impact on holiday effect or not. The vacation date of legal holiday changed in 2008 and there is significant difference on Labor Day after the changing. People can take a vacation for seven days before 2008 and there are only three days since 2008.Therefore,the paper studies the influence of the length of the vacation on Labor Day.