An Empirical Study On The Existence Of Holiday Effect Based On The Shanghai Composite Index And Shenzhen Component Index

Traditional Financial Economic Theory is based on the rational man hypothesis and the efficient market hypothesis. However, more and more market anomalies have been proven and challenged the efficient market hypothesis. As one of the market anomalies, the effect of holidays attaches many researchers’attention in recent years. Based on the Shanghai Composite Index and Shenzhen Component Index daily returns data for the study, the ARMA-GARCH-GED model with virtual variables is established to investigate whether there is a significant holiday effect and other factors which have great influence on the outcomes or not. Additionally, the sample period is from January 4th,2000 to May 30th,2014.The results demonstrate that:on the overall statistical test, Shanghai stock market has significant pre-holiday and post-holiday effects both on the International Labor Day and the National Day, while Shenzhen stock market has holiday effect on the National Day significantly; in post and negative tests, both of the two stock markets have significant long holiday effects and negative intervals usually have more significant effects than that of the post intervals; after considering weekly effect and adding dummy variables, we found that holiday effects still exist in the two stock markets significantly.