The Month Effect in the Baltic and Nordic Stock Markets at Market-Level and Sector-Level

The purpose of this study is to analyze and compare the trends in the expression of the month effect in the Nasdaq Baltic and Nasdaq Nordic stock markets, as well as to examine whether the seasonal stock price fluctuations occur in all industrial sectors of these markets or are specific to certain sectors only. The OMX Baltic Benchmark, OMX Baltic, and OMX Nordic 40 indexes, which reflect the situation in the Baltic and Nordic stock markets, were used in the study to assess seasonality at the market level. To assess the seasonality in separate sectors of the Baltic and Nordic markets, we used sectoral indexes calculated in these markets. The data sample covers the period from January 2, 2004 through December 31, 2019. The methodology of the research used to examine seasonality in daily returns entails estimating a regression with dummies and GARCH (1,1) to capture month effects. Although the results of OLS and GARCH (1,1) analysis were quite different, they proved the existence of the month effect in both the Baltic and Nordic stock markets. The results of the analysis of seasonal fluctuations in stock prices at sector-level evidenced that month effects appear both in Baltic market and Nordic market, which allows earning abnormal returns in particular months for those who invested in stock of certain sectors. Our research has evidenced that trends in the volatility of stock prices in separate months in the Baltic countries are not stable and are characterized by greater instability as compared to the Nordic countries.