Testing of Turn-of-the-Month Effect in the Indonesian Capital Market

Turn-of-the-Month Effect (TOM) is a phenomenon in which the tendency of the average daily return of shares at the end and beginning of the month is higher than the average daily return of shares in the middle of the month (Ariel, 1987). The next researchers found the distribution of the stock's daily return was higher at the end and beginning of the month than in the middle of the month. The TOM phenomenon has important implications in investment decision making. Where when there is a TOM, investors should consider the pattern of average daily returns based on TOM in making investment decisions.

The purpose of this study is to test and analyze TOM in the Indonesian capital market. The samples in this study are the Composite Stock Price Index (CSPI), the LQ-45 Index (LQ45), the Jakarta Islamic Index (JII), the Development Board Index (DBI) and the Main Board Index (MBI) from 1990 to 2019, which are determined with a purposive sampling method. The data analysis and testing technique used in this study is GARCH.

The novelty in this study is that TOM measurements are made with several new measures. The new measurement is the measurement of TOM at h-1 up to h + 1, h-1 up to h + 2, h-1 up to h + 5, and h-1 up to h + 6. Previous researchers have not considered using the new measure in TOM testing. With this new measure of TOM, it is expected that TOM can be tested and analyzed more up-to-date, as well as a TOM estimation model that can be used to make estimates specifically in the Indonesian capital market.

The results of this study are expected to provide investors, regulators, securities companies and subsequent researchers with a more detailed picture of TOM in the Indonesian capital market. A more detailed description of TOM can be a consideration for investors in making decisions, considerations for regulators in setting policies, considerations for securities companies in providing education, and for researchers to develop further research.