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Central European Management Journal

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Year 2019 
Volume 27 
Issue 4

Calendar Anomalies, Market Regimes, and the Adaptive MarketHypothesis in African Stock Markets

Adefemi A. Obalade
University of KwaZulu-Natal, South Africa

Paul-Francois Muzindutsi
University of KwaZulu-Natal, South Africa

2019 27 (4) Central European Management Journal

DOI 10.7206/cemj.2658-0845.10

Abstract

Purpose: This paper examines the changing behavior of two calendar anomalies in African stock
returns – the month-of-the-year and the intra-month effects – and their implications for the adaptive
market hypothesis (AMH).
Methodology: We applied two-stage Markov switching models (MSMs) instead of the conventional
single state regression model. The sample period includes the daily index return of Nigerian, South
African, Mauritian, Moroccan, and Tunisian stock exchanges from January 1998 to February 2018.
Findings: We found that (i) all the markets except for the Johannesburg Stock Exchange (JSE) have
a higher tendency to be in bearish state than bullish state, (ii) month-of-the-year and intra-month
effects appear in one regime and disappear in another regime, and (iii) the behavior of calendar
anomalies is affected by market conditions and conforms to AMH rather than the efficient market
hypothesis (EMH).
Practical Implications: We present that (i) calendar anomaly is a characteristic that changes under
different regimes or market conditions in African stock markets, (ii) active investment management
may yield profits for market participants, depending on the market conditions and the anomaly in
question, and (iii) the right approach would be for investors to consider each market with its own
peculiarity even when they are in the same continent.
Originality/Value: The sensitivity of the month-of-the-year and the intra-month effects to market
conditions has not been documented in African stock markets, especially with the use of
regime-switching models

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  57. Alagidede, P. (2013). Month of the Year and Pre-Holiday Effects in African Stock Markets. Sajems, 16(1), 64–74, https://doi.org/10.4102/sajems.v16i1.246. [Google Scholar]
  58. Alagidede, P. and Panagiotidis, T. (2006). Calendar Anomalies in an Emerging African Market: Evidence From The Ghana Stock Exchange, http://ideas.repec.org/p/lbo/lbowps/2006_13.html. [Google Scholar]
  59. Archana, S., Safeer, M. and Kelvin, S. (2014). A Study on Market Anomalies in India Stock Market. International Journal of Business and Administration Research Review, 1(3), 128–137. [Google Scholar]
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  61. Arsad, Z. and Coutts, J.A. (1997). Security Price Anomalies in the London International Stock Exchange: A 60 Year Perspective. Applied Financial Economics, 7(5), 455–464, https://doi.org/10.1080/096031097333312. [Google Scholar]
  62. Aylin, A. (2014). Stock return seasonality in emerging markets: The January effect. (Master Thesis) MSc Business Economics, Finance Track University of Amsterdam. Amsterdam Business School. [Google Scholar]
  63. Aziz, T. and Asari, V.A. (2018). The Turn of the Month Effect in Asia-Pacific Markets: New Evidence. Global Business Review, 19(1), 214–226, https://doi.org/10.1177/0972150917713370. [Google Scholar]
  64. Bildik, R. (2004). Are Calendar Anomalies Still Alive? Evidence from Istanbul Stock Exchange, https://ssrn.com/abstract=598904. [Google Scholar]
  65. Branch, B. (1977). A Tax Loss Trading Rule. Journal of Business, 50(2), 198–207, http://dx.doi.org/10.1086/295930. [Google Scholar]
  66. Brishan, R. (2012).Calendar Effects on the Nine Economic Sectors of the Johannesburg Stock Exchange (A Master thesis). School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg. [Google Scholar]
  67. Brooks, C. (2014). Introductory Econometrics for Finance (2nd Ed.). The ICMA Centre, University of Reading. New York: Cambridge University Press. [Google Scholar]
  68. Bundoo, S.K. (2011). An Analysis of Stock Market Anomalies and Momentum Strategies on the Stock Exchange of Mauritius. AERC Research Paper, 227(1), 1–48, https://doi.org/10.1108/20400701211265018. [Google Scholar]
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  71. Choudhry, T. (2001). Day of the Week Effect in Emerging Asian Stock Markets: Evidence from the GARCH Model. Applied Financial Economics, 10(20), 235–242, http://www.tandfonline.com/doi/abs/10.1080/096031000331653. [Google Scholar]
  72. Dyl, E. (1977). Capital Gains Taxation and Year-end Stock Market Behavior. Journal of Finance, 32, 165–175, https://doi.org/10.2307/2326911. [Google Scholar]
  73. Fama, E.F. (1965). The Behaviour of Stock Market Prices. Journal of Business, 38(1), 34–105, http://dx.doi.org/10.1086/294632. [Google Scholar]
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  76. Gultekin, N. and Gultekin, N.B. (1983). Stock Market Seasonality: International Evidence. Journal of Financial Economics, 12, 469–481. [Google Scholar]
  77. Hui, T. (2005). Day of the Week Effects in US and Asia-Pacific Stock Markets During the Asian Financial Crisis: a Non-parametric Approach. The International Journal of Management Science, 33, 277–282, https://doi.org/10.1016/j.omega.2004.05.005. [Google Scholar]
  78. Jaffe, J. and Westerfield, R. (1989). Is there a monthly effect in stock market returns? Evidence from foreign countries. Journal of Banking and Finance, 13(2), 237–244. [Google Scholar]
  79. Keim, D.B. (1983). Size-related Anomalies and Stock Return Seasonality: Further Empirical Evidence. Journal of Financial Economics, 12, 13–32. [Google Scholar]
  80. Kohers, G., Kohers, N., Pandey, V. and Kohers, T. (2004). The Disappearing Day of the Week Effect in the World’s Largest Equity Markets. Applied Economic Letters, 11, 167–171, https://doi.org/10.1080/1350485042000203797. [Google Scholar]
  81. Kohli, R.K. and Kohers, T. (1992). The week-of-the-month effect in stock returns: The evidence from the S&P Composite Index. Journal of Economics and Finance, 16, 129, https://doi.org/10.1007/BF02920113. [Google Scholar]
  82. Lei, G. and Gerhard, K. (2005). Calendar Effects in Chinese Stock Market. Annals of Economics and Finance, 6(5), 75–88. [Google Scholar]
  83. Lo, A.W. (2004). The adaptive markets hypothesis: market efficiency from an evolutionary perspective, https://ssrn.com/abstract=602222. [Google Scholar]
  84. Lo, A.W. (2005). Reconciling efficient markets with behavioral finance: the adaptive markets hypothesis. Journal of Investment Consulting, 7(2), 21–44. [Google Scholar]
  85. Lo, A.W. (2017). Adaptive Markets Financial Evolution at the Speed of Thought. Princeton and Oxford: Princeton University Press. [Google Scholar]
  86. Lo, A.W. and Hasanhodzic, J. (2010). The Evolution of Technical Analysis: Financial Prediction from Babylonian Tablets to Bloomberg Terminals. Audible Studio. [Google Scholar]
  87. Lo, A.W., Blume, L. and Durlauf, S. (2007). The New Palgrave: A Dictionary of Economics (Second Edition). New York: Palgrave McMillan. [Google Scholar]
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  89. Maberly, E. and Waggoner, D. (2000). Closing the Question on the Continuation of the Turn of the Month Effects: Evidence from the S&P 500 Index Future Contracts. Federal Reserve Bank of Atlanta. [Google Scholar]
  90. Magnus, K. (2008). Seasonal Anomalies in the Swedish Stock Market from an Industry Perspective. Department of Economics, Lund University, Sweden. [Google Scholar]
  91. Márcio, D.P.B. (2015). Calendar Effects in the Portuguese Mutual Funds Market. Dissertation Master in Finance, https://repositorio-aberto.up.pt/bitstream/10216/81370/2/37174.pdf. [Google Scholar]
  92. Martin, S. (2011). Characterization of Financial Time Series. Research Note, 11(1), 1–35. [Google Scholar]
  93. Merton, R. (1987). On the current state of the stock market rationality hypothesis. In: R. Dornbusch, S. Fischer and J. Bossons (eds.), Macroeconomics and Finance: Essays in Honor of Franco Modigliani. Cambridge, MA: MIT Press. [Google Scholar]
  94. Oba, E. (2014). Monthly Stock Market Seasonality: The Nigerian Evidence. Research Journal of Finance and Accounting, 5(9), 22–35. [Google Scholar]
  95. Obalade, A.A. and Muzindutsi, P.F. (2019). The Adaptive Market Hypothesis and the Day-of-the- -Week Effect in African Stock Markets: the Markov Switching Model. Comparative Economic Research, 22(3), 145–162. [Google Scholar]
  96. Ogden, J.P. (1990). Turn-of-month Evaluations of Liquid Profits and Stock Returns: A Common Explanation for the Monthly and January effects. The Journal of Finance, 45(4), 1259–1272, https://doi.org/10.2307/2328723. [Google Scholar]
  97. Osamah, A. and Ali, M. (2017). Stock market anomalies, market efficiency and the adaptive market hypothesis: Evidence from Islamic stock indices. Journal of International Financial Markets, Institutions and Money, 51(C), 190–208. [Google Scholar]
  98. Perlin, M.P. (2015). MS_Regress – The MATLAB Package for Markov Regime Switching Models (SSRN Scholarly Paper No. ID 1714016). Rochester, NY: Social Science Research Network, https://papers.ssrn.com/abstract=1714016. [Google Scholar]
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  100. Rahele, S., Fereydoun, R.R. and Mohammad, H. (2013). A Study to Examine Time-Varying Effectiveness of Stock Returns on Tehran Stock Exchange. International Journal of Financial Research, 4(2), 154–161, https://doi.org/10.5430/ijfr.v4n2p154. [Google Scholar]
  101. Rich, S. (2018). Calendar Effects on the Johannesburg Stock Exchange: A Markov Switching Approach (M.Sc. Thesis). Gordon Institute of Business Science, University of Pretoria. [Google Scholar]
  102. Rossi, M. (2007). Calendar anomalies in stock returns: Evidence from South America. (Bachelors’ thesis). Lappeenranta University of Technology Department of Business Administration Section of Finance. [Google Scholar]
  103. Rossi, M. and Gunardi, A. (2018). Efficient Market Hypothesis And Stock Market Anomalies: Empirical Evidence In Four European Countries. Journal of Applied Business Research, 34(1), 183–192, https://doi.org/10.19030/jabr.v34i1.10111. [Google Scholar]
  104. Rozeff, M.S. and Kinney, W.R. (1976).Capital market seasonality: The case of Stock Market Returns. Journal of Financial Economics, 3, 376–402, https://doi.org/10.1016/0304-405X(76)90028-3. [Google Scholar]
  105. Rubinstein, M. (2001). Rational Markets: Yes or No? The Affirmative Case. Financial Analysts Journal, 57, 15–29, http://dx.doi.org/10.2139/ssrn.242259. [Google Scholar]
  106. Schwert, G. (2001). Anomalies and Market Efficiency. In G. Constantinides et al., Handbook of the Economics of Finance. North Holland, Amsterdam. [Google Scholar]
  107. Sedeaq, N. (2016). The Day of the Week Effect of Stock Returns: Empirical Evidence from Five Selected Arab Countries. Eurasian Journal of Business and Management, 4(2), 55–64, https://ssrn.com/abstract=3216384. [Google Scholar]
  108. Steeley, J. (2001). A Note on Information Seasonality and the Disappearance of the weekend Effect in UK Stock Market. Journal of Banking and Finance, 25, 1941–1956, https://doi.org/10.1016/S0378-4266(00)00167-9. [Google Scholar]
  109. Africa Tax, Law, Finance Hub (2016). African Equity Market Capitalisation, http://www.acm-consult.com. [Google Scholar]
  110. Agnani, B. and Aray, H. (2011). The January effect across volatility regimes. Quantitative Finance, 11(6), 947–953, https://doi.org/10.1080/14697680903540373. [Google Scholar]
  111. Alagidede, P. (2013). Month of the Year and Pre-Holiday Effects in African Stock Markets. Sajems, 16(1), 64–74, https://doi.org/10.4102/sajems.v16i1.246. [Google Scholar]
  112. Alagidede, P. and Panagiotidis, T. (2006). Calendar Anomalies in an Emerging African Market: Evidence From The Ghana Stock Exchange, http://ideas.repec.org/p/lbo/lbowps/2006_13.html. [Google Scholar]
  113. Archana, S., Safeer, M. and Kelvin, S. (2014). A Study on Market Anomalies in India Stock Market. International Journal of Business and Administration Research Review, 1(3), 128–137. [Google Scholar]
  114. Ariel, R.A. (1987). A monthly effect in stock returns. Journal of Financial Economics, 18(1), 161–174, https://doi.org/10.1016/0304-405X(87)90066-3. [Google Scholar]
  115. Arsad, Z. and Coutts, J.A. (1997). Security Price Anomalies in the London International Stock Exchange: A 60 Year Perspective. Applied Financial Economics, 7(5), 455–464, https://doi.org/10.1080/096031097333312. [Google Scholar]
  116. Aylin, A. (2014). Stock return seasonality in emerging markets: The January effect. (Master Thesis) MSc Business Economics, Finance Track University of Amsterdam. Amsterdam Business School. [Google Scholar]
  117. Aziz, T. and Asari, V.A. (2018). The Turn of the Month Effect in Asia-Pacific Markets: New Evidence. Global Business Review, 19(1), 214–226, https://doi.org/10.1177/0972150917713370. [Google Scholar]
  118. Bildik, R. (2004). Are Calendar Anomalies Still Alive? Evidence from Istanbul Stock Exchange, https://ssrn.com/abstract=598904. [Google Scholar]
  119. Branch, B. (1977). A Tax Loss Trading Rule. Journal of Business, 50(2), 198–207, http://dx.doi.org/10.1086/295930. [Google Scholar]
  120. Brishan, R. (2012).Calendar Effects on the Nine Economic Sectors of the Johannesburg Stock Exchange (A Master thesis). School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg. [Google Scholar]
  121. Brooks, C. (2014). Introductory Econometrics for Finance (2nd Ed.). The ICMA Centre, University of Reading. New York: Cambridge University Press. [Google Scholar]
  122. Bundoo, S.K. (2011). An Analysis of Stock Market Anomalies and Momentum Strategies on the Stock Exchange of Mauritius. AERC Research Paper, 227(1), 1–48, https://doi.org/10.1108/20400701211265018. [Google Scholar]
  123. Bush, P.J. and Stephens, J.E. (2016). The Return of the Monday Effect in European Currency Markets: An Empirical Analyses of the Impact of the Economic Crisis on Market Efficiency. International Journal of Finance and Economics, 21(3), 241–246. [Google Scholar]
  124. Chen, H. and Singal, V. (2004). All Things Considered, Taxes Drive the January Effect. Journal of Financial Research, 27(3), 351–372. [Google Scholar]
  125. Choudhry, T. (2001). Day of the Week Effect in Emerging Asian Stock Markets: Evidence from the GARCH Model. Applied Financial Economics, 10(20), 235–242, http://www.tandfonline.com/doi/abs/10.1080/096031000331653. [Google Scholar]
  126. Dyl, E. (1977). Capital Gains Taxation and Year-end Stock Market Behavior. Journal of Finance, 32, 165–175, https://doi.org/10.2307/2326911. [Google Scholar]
  127. Fama, E.F. (1965). The Behaviour of Stock Market Prices. Journal of Business, 38(1), 34–105, http://dx.doi.org/10.1086/294632. [Google Scholar]
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  188. Kohers, G., Kohers, N., Pandey, V. and Kohers, T. (2004). The Disappearing Day of the Week Effect in the World’s Largest Equity Markets. Applied Economic Letters, 11, 167–171, https://doi.org/10.1080/1350485042000203797. [Google Scholar]
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  213. Rubinstein, M. (2001). Rational Markets: Yes or No? The Affirmative Case. Financial Analysts Journal, 57, 15–29, http://dx.doi.org/10.2139/ssrn.242259. [Google Scholar]
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  219. Alagidede, P. (2013). Month of the Year and Pre-Holiday Effects in African Stock Markets. Sajems, 16(1), 64–74, https://doi.org/10.4102/sajems.v16i1.246. [Google Scholar]
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  222. Ariel, R.A. (1987). A monthly effect in stock returns. Journal of Financial Economics, 18(1), 161–174, https://doi.org/10.1016/0304-405X(87)90066-3. [Google Scholar]
  223. Arsad, Z. and Coutts, J.A. (1997). Security Price Anomalies in the London International Stock Exchange: A 60 Year Perspective. Applied Financial Economics, 7(5), 455–464, https://doi.org/10.1080/096031097333312. [Google Scholar]
  224. Aylin, A. (2014). Stock return seasonality in emerging markets: The January effect. (Master Thesis) MSc Business Economics, Finance Track University of Amsterdam. Amsterdam Business School. [Google Scholar]
  225. Aziz, T. and Asari, V.A. (2018). The Turn of the Month Effect in Asia-Pacific Markets: New Evidence. Global Business Review, 19(1), 214–226, https://doi.org/10.1177/0972150917713370. [Google Scholar]
  226. Bildik, R. (2004). Are Calendar Anomalies Still Alive? Evidence from Istanbul Stock Exchange, https://ssrn.com/abstract=598904. [Google Scholar]
  227. Branch, B. (1977). A Tax Loss Trading Rule. Journal of Business, 50(2), 198–207, http://dx.doi.org/10.1086/295930. [Google Scholar]
  228. Brishan, R. (2012).Calendar Effects on the Nine Economic Sectors of the Johannesburg Stock Exchange (A Master thesis). School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg. [Google Scholar]
  229. Brooks, C. (2014). Introductory Econometrics for Finance (2nd Ed.). The ICMA Centre, University of Reading. New York: Cambridge University Press. [Google Scholar]
  230. Bundoo, S.K. (2011). An Analysis of Stock Market Anomalies and Momentum Strategies on the Stock Exchange of Mauritius. AERC Research Paper, 227(1), 1–48, https://doi.org/10.1108/20400701211265018. [Google Scholar]
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  233. Choudhry, T. (2001). Day of the Week Effect in Emerging Asian Stock Markets: Evidence from the GARCH Model. Applied Financial Economics, 10(20), 235–242, http://www.tandfonline.com/doi/abs/10.1080/096031000331653. [Google Scholar]
  234. Dyl, E. (1977). Capital Gains Taxation and Year-end Stock Market Behavior. Journal of Finance, 32, 165–175, https://doi.org/10.2307/2326911. [Google Scholar]
  235. Fama, E.F. (1965). The Behaviour of Stock Market Prices. Journal of Business, 38(1), 34–105, http://dx.doi.org/10.1086/294632. [Google Scholar]
  236. Fama, E.F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, 25(2), 383–417, https://doi.org/10.2307/2325486. [Google Scholar]
  237. Grossman, S.J. and Stiglitz, J.E. (1980). On the Impossibility of Informationally Efficient Markets. The American Economic Review, 70(3), 393–408. [Google Scholar]
  238. Gultekin, N. and Gultekin, N.B. (1983). Stock Market Seasonality: International Evidence. Journal of Financial Economics, 12, 469–481. [Google Scholar]
  239. Hui, T. (2005). Day of the Week Effects in US and Asia-Pacific Stock Markets During the Asian Financial Crisis: a Non-parametric Approach. The International Journal of Management Science, 33, 277–282, https://doi.org/10.1016/j.omega.2004.05.005. [Google Scholar]
  240. Jaffe, J. and Westerfield, R. (1989). Is there a monthly effect in stock market returns? Evidence from foreign countries. Journal of Banking and Finance, 13(2), 237–244. [Google Scholar]
  241. Keim, D.B. (1983). Size-related Anomalies and Stock Return Seasonality: Further Empirical Evidence. Journal of Financial Economics, 12, 13–32. [Google Scholar]
  242. Kohers, G., Kohers, N., Pandey, V. and Kohers, T. (2004). The Disappearing Day of the Week Effect in the World’s Largest Equity Markets. Applied Economic Letters, 11, 167–171, https://doi.org/10.1080/1350485042000203797. [Google Scholar]
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  244. Lei, G. and Gerhard, K. (2005). Calendar Effects in Chinese Stock Market. Annals of Economics and Finance, 6(5), 75–88. [Google Scholar]
  245. Lo, A.W. (2004). The adaptive markets hypothesis: market efficiency from an evolutionary perspective, https://ssrn.com/abstract=602222. [Google Scholar]
  246. Lo, A.W. (2005). Reconciling efficient markets with behavioral finance: the adaptive markets hypothesis. Journal of Investment Consulting, 7(2), 21–44. [Google Scholar]
  247. Lo, A.W. (2017). Adaptive Markets Financial Evolution at the Speed of Thought. Princeton and Oxford: Princeton University Press. [Google Scholar]
  248. Lo, A.W. and Hasanhodzic, J. (2010). The Evolution of Technical Analysis: Financial Prediction from Babylonian Tablets to Bloomberg Terminals. Audible Studio. [Google Scholar]
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  251. Maberly, E. and Waggoner, D. (2000). Closing the Question on the Continuation of the Turn of the Month Effects: Evidence from the S&P 500 Index Future Contracts. Federal Reserve Bank of Atlanta. [Google Scholar]
  252. Magnus, K. (2008). Seasonal Anomalies in the Swedish Stock Market from an Industry Perspective. Department of Economics, Lund University, Sweden. [Google Scholar]
  253. Márcio, D.P.B. (2015). Calendar Effects in the Portuguese Mutual Funds Market. Dissertation Master in Finance, https://repositorio-aberto.up.pt/bitstream/10216/81370/2/37174.pdf. [Google Scholar]
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  257. Obalade, A.A. and Muzindutsi, P.F. (2019). The Adaptive Market Hypothesis and the Day-of-the- -Week Effect in African Stock Markets: the Markov Switching Model. Comparative Economic Research, 22(3), 145–162. [Google Scholar]
  258. Ogden, J.P. (1990). Turn-of-month Evaluations of Liquid Profits and Stock Returns: A Common Explanation for the Monthly and January effects. The Journal of Finance, 45(4), 1259–1272, https://doi.org/10.2307/2328723. [Google Scholar]
  259. Osamah, A. and Ali, M. (2017). Stock market anomalies, market efficiency and the adaptive market hypothesis: Evidence from Islamic stock indices. Journal of International Financial Markets, Institutions and Money, 51(C), 190–208. [Google Scholar]
  260. Perlin, M.P. (2015). MS_Regress – The MATLAB Package for Markov Regime Switching Models (SSRN Scholarly Paper No. ID 1714016). Rochester, NY: Social Science Research Network, https://papers.ssrn.com/abstract=1714016. [Google Scholar]
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A. Obalade, A. , & Muzindutsi, P. - F. . (2019). Calendar Anomalies, Market Regimes, and the Adaptive MarketHypothesis in African Stock Markets. Central European Management Journal, 27(4), 71-94. https://doi.org/10.7206/cemj.2658-0845.10 (Original work published 2019)

MLA style

A. Obalade, A. , and P. - F. Muzindutsi. “Calendar Anomalies, Market Regimes, And The Adaptive Markethypothesis In African Stock Markets”. 2019. Central European Management Journal, vol. 27, no. 4, 2019, pp. 71-94.

Chicago style

A. Obalade, Adefemi , and Paul-Francois Muzindutsi. “Calendar Anomalies, Market Regimes, And The Adaptive Markethypothesis In African Stock Markets”. Central European Management Journal, Central European Management Journal, 27, no. 4 (2019): 71-94. doi:10.7206/cemj.2658-0845.10.