PLEASE PUT A STEP HOW TO EXTRACT DATA AND ANSWER QUESTION b!

Question 1

In fifinance, January effffect is the idea that January is usually a good month for investing. The theory predicts that every December, the stock prices will take a dip while the following month, it will receive a boost. This occur because of heavy selling during December while in January we will see aggressive buying. This idea was fifirst coined by Sidney Wachtel, an investment banker in 1942. They are several explanation on this occurrence. One of it is tax-loss selling hypothesis by Branch (1977) where a taxpayer wishing to offffset a gain or reduce ordinary income. The idea is that investors sell of their price-declined shares at the end of the tax year (December), in order to reduce to reduce tax liability. Another explanation explanation could be the fact that the small fifirms have a signifificantly higher risk (and hence an associated higher return) during the fifirst month of each new year that during the following months (Rogalski and Tinic, 1986). One have to remember that evidence of January effffect is a manifestation of the failure of

effiffifficient market hypothesis (EMH) to hold. Asteriou and Kavetsos (2003) suggested to test explicitly for January effffects, to run the following regerssion equations

Rit = c + a2D2t + a3D3t + + a12D12t + ut

(1)

where Rt indicates stock market return at time t, the intercept c represent the mean return for January, and the coeffiffifficients ai represent the difffference between the return for January and month i. The null hypothesis to be tested in this case is that all dummy variable coeffiffifficients are equal to zero. A negative value of a dummy coeffiffifficients in Eq.(1) will specify which months have lower average returns than those obtained in January.

The assignment task goes as this:

b) Using the data, run regression Eq.(1). Varieties of software are available. Since we cant access E-Views (not a freeware, but UM has subscription of this software. But you can download the student version for free, not sure on its limitation) outside UM, I suggest to use GRETL. It is a freeware and can be install on Windows, Mac or even Linux. I will provide special class session on basic of GRETL. Excel can also do the work.