Anomalies in Korean Mutual Funds Market: Empirical Evidence on Calendar Effects
Authors:   Asia-Europe Perspective Association, Kim Noolee 
Published: June 2018

Anomalies are empirical results that are observed with high degree of consistency in various empirical analyses of asset returns but seem to be inconsistent with existing theories of asset price behavior. They are exceptional and interesting phenomena in that they are consistently observed in different time periods, instruments, markets, and countries but can not be explained with maintained theories. As Fama(1970) points out, anomalies indicate either market inefficiency or inappropriateness of the underlying asset pricing model because they can be defined only compared to ‘normal phenomenon’ suggested by asset pricing theories. Therefore, anomalies imply that there might be some factors which the current theories of asset price behavior fail to incorporate. On the other hand, anomalies are important phenomenon for the practitioners in the financial industries because the existence of anomalies might mean that there are profit opportunities through investment strategies exploiting the anomalous price behavior (Jensen, 1978).
opportunities through investment strategies exploiting the anomalous price behavior (Jensen, 1978). Anomalies consist of seasonal anomaly which is cyclical or seasonal anomaly in return behaviors, where the cycle is based on the calendar and firm characteristic anomaly which is anomalous behavior of returns based on the specific characteristics of firms. For seasonal anomaly, aka calendar effects, various anomalous return behaviors has been emerged through extensive researches. Weekend effects mean the tendency of returns to exhibit relatively lower returns on Mondays. Intramonth effects refer to the positive returns mainly in the first half of the month. Turn-of-the-month effects state that the last day of a month and the first three days of the next month exhibit relatively higher returns. January effects indicate that the returns in January are much higher than returns in other months, and this effects are concentrated in the first half of January. Holiday effects mean the relatively higher returns on days right before a holiday. Lunar new year Effects refer to the tendency of relatively higher returns on days right before lunar new year holiday periods. Meanwhile, there are several studies of the calendar effects in Korean capital market. They, however, deal with only stock index returns and the sample periods are before 1990s when the Korean capital market are not fully functional yet.
This study examine the mutual funds in Korean market which are important instruments for investments and have shown significant growth since middle of 2000s. Specifically, we look into whether widely known six calendar effects are observed in the mutual fund returns in Korean market. For the analysis, using mutual fund data for the period from July 2002 to April 2010, we construct six different type of mutual fund portfolios and calculate the daily fund portfolio returns using the daily returns of each individual fund in the portfolio. In order to check the existence of calendar effects in mutual fund returns, we examine whether the specific distribution of daily fund returns are consistent with various calendar effects and test the statistical significance using regression analyses with dummy variables.
Empirical findings are as follows. First, there are no evidence of weekend effects. On the contrary, absolute return fund, bond fund and MMF exhibit significantly higher returns in Monday. Second, a return behavior consistent with intramonth effects are observed but they are not statistically significant. Third, statistically significant turn-of-the-month effects exist for all types of funds except bond fund. Fourth, January effects do not exist. Instead, for all fund types except bond fund and MMF, returns in second half of January are significantly lower. Fifth, a return pattern consistent with holiday effect are detected but it is with no statistical significance.