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Testing the monthly anomaly with stochastic dominance

Mei-Chu Ke (Department of Industrial Engineering and Management, National Chin-Yi University of Technology, Taichung City, Taiwan)
Jian-Hsin Chou (Department of Finance, National Kaohsiung First University of Science and Technology, Kaohsiung City, Taiwan)
Chin-Shan Hsieh (Department of Marketing and Distribution Management, Kao Yuan University, Kaohsiung City, Taiwan)
Tsung-Li Chi (Department of Finance, I-Shou University, Kaohsiung City, Taiwan)
Cheng-Te Chen (Department of Management Information Systems, Far East University, Tainan City, Taiwan)
Tung Liang Liao (Department of Finance, Feng Chia University, Taichung City, Taiwan)

Managerial Finance

ISSN: 0307-4358

Article publication date: 7 January 2014




This study uses stochastic dominance (SD) theory to examine whether the traditional festival, such as the Spring Festival (often in February), affects the patterns of monthly anomaly for the Taiwan Stock Exchange (TWSE). The paper aims to discuss these issues.


The authors employ a new bootstrap-based test due to Linton, Maasoumi and Whang (hereafter LMW). The LMW test is well suited for financial time series data, such as monthly returns of various portfolios in this study, because it allows for general dependence among the prospects (distributions) and does not require the observations to be identically and independently distributed.


The particular findings of this study are that the February effect and the February-size effect indeed exist in the TWSE. Furthermore, allowing part of investors' assets is invested in the risky asset and the remaining part in a risk-free asset, first finding for monthly anomaly in the extant literature, is useful in distinguishing the performance among various size-month portfolios.


Instead of tax-loss and window dressing hypothesis, the Spring Festival money movement hypothesis can be used to well explain the findings.



JEL classification – G10, G14.


Ke, M.-C., Chou, J.-H., Hsieh, C.-S., Chi, T.-L., Chen, C.-T. and Liang Liao, T. (2014), "Testing the monthly anomaly with stochastic dominance", Managerial Finance, Vol. 40 No. 2, pp. 137-156.



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Copyright © 2014, Emerald Group Publishing Limited

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