An Investigation of Calendar Anomalies among Environmental, Social and Governance Stocks in Bursa Malaysia

Lim, Wuan Chin (2024) An Investigation of Calendar Anomalies among Environmental, Social and Governance Stocks in Bursa Malaysia. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

In recent years, Environmental, Social and Governance (ESG) investing has increasingly become the foreground within investment communities. This trend is underscored by a notable surge in investments channelled into ESG funds on Bursa Malaysia, which now boasts an impressive asset under management worth approximately US$143.5 billion. Such figures reflect robust growth and solidify the global acknowledgement of ESG as a pivotal investment strategy. Given the rise of ESG investments, this study seeks to understand their influence on stock market dynamics through an examination of calendar anomalies, namely the day-of-the-week effect, month-of-the-year effect, turn-of-the-month effect and Ramadan effect with ESG stocks in Bursa Malaysia over the period from January 2, 2015, through December 31, 2023. The primary objective is to determine whether the calendar anomalies differ between the ESG equity index and traditional equity index as well as between the high ESG and low ESG-compliant stocks. The analysis utilizes data from two major indices: the FTSE4Good Bursa Malaysia Index (F4GBM), representing the ESG equity index, and the FTSE Bursa Malaysia EMAS Index (FBMEMAS), representing the traditional equity index. More specifically, this research categorizes constituents of the F4GBM Index into three groups based on their ranking, i.e. Top 25%, Top 26-50%, and Top 51-75%, to explore variations in calendar anomalies among varying levels of ESG-compliance within stocks. The study employs the Generalised Autoregressive Conditional Heteroskedasticity (GARCH) model to analyze its data. The research findings indicate differentiated calendar anomalies between the F4GBM and FBMEMAS indices and within the constituents of F4GBM. Specifically, notable disparities in anomalies were observed on Mondays and Thursdays, as well as during May and December for both F4GBM and FBMEMAS. Similarly, constituents of F4GBM exhibited pronounced differences on Mondays and in January and May. The study concludes that turn-of-the-month effects and Ramadan observances have negligible impacts on Bursa Malaysia. These results suggest a deviation from market efficiency within the Malaysian stock market, potentially providing investors with opportunities to achieve abnormal returns through strategic trading. The results of this study hold several critical implications for multiple stakeholders in the financial ecosystem. Firstly, financial regulators and policymakers are provided with a clearer understanding of ESG investments’ impact on market dynamics and efficiency. This knowledge is essential in aiding them in refining regulatory frameworks and policies to enhance market transparency, integrity and stability. Furthermore, this research serves as a crucial reminder to publicly traded companies about implementing robust risk management strategies to mitigate the effects of calendar anomalies on stock prices. Additionally, investors stand to gain from these findings, which offer practical insights into the behaviour of ESG-related stocks and indices. These insights enable investors to make more informed decisions, potentially improving investment outcomes.