The Solar Term Effect Analysis Of Different Industries In China’s Stock Market

With the development of financial markets, a large number of empirical studies and empirical data show that the efficient market hypothesis (EMH) in the financial market seems to have not established, which meets great challenges by more and more market anomalies. One important reason is that investors are not completely rational, which can be influenced by different emotional factors. In recent decades, a large number of studies have found that climate change can affect people’s mood so as to have effects on the securities market.The purpose of this dissertation is to review the domestic and foreign literature about the relationship between weather and stock market return and then explore the nexus between the Chinese lunar 24 solar terms and the volatility of the Chinese stock market. The findings show that there exists calendar effects of different industries in the Chinese stock market. The time series data in this dissertation sourced from the daily Shenwan all Plate Index return from January 1,2000 to December 31,2015, which is used for entire sample and subsample research. Except analyzing the entire 15-year sample, this dissertation also adopts the rolling window method in the subsample research, which is divided into 12 rolling windows with each five-year interval. To be specific, dummy independent variables and dummy control variables are initially regressed in the OLS regression model while the results appear the autocorrelation and heteroscedasticity. To solve these problems, a mixed model combined with the ARMA model and the GARCH model is employed in the further empirical research. However, even the control variables of calendar are brought in the regression, the solar term effect still remains significant. As can be found in the empirical analysis of the Chinese stock market, the solar term effect of different industries is significant in the entire sample research whilst the subsamples research indicate that the stock return of different industries varies irregularly according to the change of solar term, which means the solar term effect of different industries is not stable overtime. After controlling calendar dummy variables, the solar term effect in the Chinese stock market still exists, which suggests that the solar term effect is not affected by the calendar effect. Due to the length limitation, the author only focuses on analyzing five industries related to Mining, Real Estate, Mechanical Equipment, Transportation and Agriculture, and then draws the conclusion in the last part of the Section Four.Finally, we try to interpret the solar term effect from the aspects of characteristics of solar term, industry features, investor sentiment, etc. and then explain the reasons why the solar term effect of different industries changes over time. Meanwhile, based on the research results above, we also provide some important suggestions for investors and policy recommendations for the government.