Holiday Effect On China’s Stock Market

As the cornerstone theory of modern finance and investment,the Efficient Market Hypothesis believes that the capital market can fully and timely respond to all kinds of information,and the asset price fully reflects all relevant information in the market,but since the arrival of information is random,so the asset prices are also random and unpredictable.Therefore,it is impossible for any investor in the stock market to use the relevant information to predict the future price of the stock to gain excess returns.However,since the 1980 s,some market anomalies that cannot be explained by the Efficient Market Hypothesis have been confirmed.The existence of market anomalies is a huge challenge to the Efficient Market Hypothesis,which has shaken the foundation of the Efficient Market Hypothesis.The Holiday Effect is a kind of market anomalies,although some scholars have studied it,the research results are still immature.In particular,the study on the Holiday effect on Chinese stock market leaves much more to be perfected.This paper aims at studying the existence and characteristics of the Holiday Effect on Chinese stock market from the perspective of return and volatility,with the daily return data from December 28 th,2007 to October30 th,2017 of Shanghai and Shenzhen Index,and the GARCH(1,1)-M model with dummy variables.This paper first comprehensively tests the Holiday Effects of the stock market in Shanghai and Shenzhen to grasps the characteristics of the Holiday Effects in the two major stock markets of China,and compares the Holiday Effects of traditional holidays and statutory holidays.Secondly,we study the Holiday Effects of each holiday and examine the impact they have taken to the returns and volatility of the two stock markets.Finally,it is studied whether the market closing is the cause of the Holiday Effect,and empirically analyzes whether the market closing has an impact on the Holiday Effect.Comprehensively testing the Holiday Effect,we found that the Shanghai stock market has a pre-holiday effect based on return,and significant pre-and post-holiday effect based on volatility,there is only a post-holiday effect based on return in the Shenzhen stock market;The risk of Shanghai stock market of pre-and post-holiday all reduced notably,but only pre-holiday return is impacted.Based on a specific analysis of each holiday,we found that some holidays have a Holiday Effect,and the Holiday Effects of each holiday are different,the abnormal returns of individual holidays are related to risks.The Holiday Effect of statutory holidays is more obvious than traditional holidays,this is related to the closing of stock market,which can influence Holiday Effect positively.The exploration of the Holiday Effect in this paper can not only enrich the research on the stock market anomalies in China,but also has practical guiding significance for investors and supervision departments.