Timing is is Everything: How the Turn of the Month Affects Stock Market Returns - Crisis vs Regular Times

Abstract

This study investigates the Turn of the Month (TOM) effect in the Pakistan stock market by examining its presence during stable market periods and crises from the year 2011 to 2022. The TOM effect which is characterized by a brief surge in stock prices occurring in the last few days of one month and the first few days of the next, is analyzed using the KSE-100 Index. A year-by-year analysis reveals that the TOM effect is significant only between the year 2011 and 2016 which diminishes in the years 2017 to 2022, likely due to economic instability and market upheavals. The findings suggest that this anomaly may dissipate during periods of heightened market volatility, distinguishing the TOM effect from other calendar anomalies. This study highlights the importance of monitoring market anomalies for regulatory adjustments and suggests that investors and institutions should adopt robust risk management strategies in response to increased unpredictability. Moreover, the changing behavior of an investor highlights the need for further behavioral finance research, with advanced techniques necessary to fully grasp evolving market dynamics. These insights provide a fresh perspective on the TOM effect in the context of the Pakistan stock market by offering practical implications for policymakers, investors, and analysts alike.