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Market Efficiency and Volatility Dynamics in the Jakarta Islamic Index: Evidence from Efficient Market Hypothesis (EMH) Anomalies
Abstract
Purpose - This study examines the efficiency of the Jakarta Islamic Index (JII) by testing for anomalies such as the Day of the Week Effect, Monday Effect, Friday Effect, and Week-Four Effect, both under normal conditions and during the Covid-19 crisis. This study seeks to determine whether JII adheres to the Efficient Market Hypothesis (EMH) or exhibits predictable patterns in stock returns.
Methodology - The study utilizes daily return data from JII, covering periods before (January 2008–February 2020), during (March 2020–December 2022), and combined before and during the Covid-19 crisis. Stationarity tests (Augmented Dickey-Fuller and Philips–Perron) were conducted, followed by ARMA/ARIMA modeling to address autocorrelation and heteroscedasticity. ARCH-GARCH models, including EGARCH, TARCH, and PARCH, were employed to analyze the volatility and leverage effects. Dummy variables for trading days and weeks are used to test for anomalies.
Findings - The results confirm the presence of the day of the week, Monday, and Week four effects in JII returns, indicating market inefficiency. However, the Covid-19 crisis did not significantly alter return patterns, suggesting resilience in the Islamic stock market. The study also identifies asymmetric volatility responses, with EGARCH (1,1) being the most suitable model, following a non-normal distribution (GED). These findings align with some prior research but contrast with others, highlighting mixed evidence on market anomalies in Islamic indices.
Implication - This study contributes to Islamic capital market literature by empirically testing behavioral and volatility-based anomalies in a major emerging Islamic index, using advanced econometric models.
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DOI: https://doi.org/10.17509/rief.v8i2.83649
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