Monthly pattern and portfolio effect on higher moments of stock returns: Empirical evidence from Hong Kong

Gordon Y N TANG*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    Using a direct test, this paper studies the month-of-the-year effect on the higher moments of six industrial stock indices of the Hong Kong market. We also examine the portfolio effect on skewness and kurtosis across month of the year to see if such an anomaly exists. The empirical results support a weak month-of-the-year effect in higher moments of stock returns. Using a complete sample of all possible combinations for each portfolio size, we show that portfolio effect varies across month of the year for both skewness and kurtosis. In particular, our results show that diversification does not necessarily provide benefits to rational investors when the stock return distribution is nonnormal, even though portfolio formation can reduce standard deviation. In June, August and October, diversification across industrial sectors results in a more negatively skewed and leptokurtic return distribution, which is not preferred by investors with risk-aversion. Two (one) possible explanations for the portfolio effect on skewness (kurtosis) are also provided. Our empirical results add new evidence to the existence of anomalies in the Hong Kong stock market.

    Original languageEnglish
    Pages (from-to)275-307
    Number of pages33
    JournalAsia-Pacific Financial Markets
    Volume5
    Issue number3
    DOIs
    Publication statusPublished - 1998

    Scopus Subject Areas

    • Finance

    User-Defined Keywords

    • Higher moments
    • Hong kong
    • Monthly pattern
    • Portfolio effect

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