Stock Market Monthly Effect

Based on the efficient market hypothesis (EMH), in traditional financial theory stock prices should follow random walk. However, more and more domestic and international empirical study found particular monthly effect in stock markets, an important achievement is the "January effect" was found in major industrial countries in the world stock markets. Basically what we have found in the stock market is that in January the market return tend to be positive, moreover the rate of return compared with other months later in also higher, meanwhile, rate of return on the stock market in December tend to be negative in such markets Scholars believe that the U.S. market, "Tax Loss Hypothesis" arrangements may lead to such phenomenon. Other explanations of this phenomenon is that the funds' "Window Dressing", end of year bonuses of the staff and also the United States major holidays (Thanksgiving Day, Christmas and New Year's Day) gather on the end of the year may result in such phenomenon. Comes to Chinese equity market, Scholars are interested in whether the monthly effect exist in our market, however, this question is still lack of consensus for conclusions. In this paper, by using least squares (OLS) and the threshold autoregressive (TARCH) regression model treatment, we found different results. Especially in the use of the threshold autoregressive (TARCH) regression model, empirical results we obtained show that in the Shenzhen A-share market and the Shenzhen B share market, respectively, significant small-cap stocks in January and February exist positive returns, compare to other months, the paper tries to give some explanations from the special market environment point.