Abstract

The aim of this paper is to provide the reader an insight into a relatively little known market in a developing country. The purpose of the study is to look at the market from an investor's/portfolio manager's perspective. Most investors are used to operating in a developed, mature market such as the New York Stock Exchange or the London Stock Exchange where trading rules, processes and regulations are well understood and familiar. On the other hand, the Amman Financial Market operates under a different set of trading rules and regulations. These different rules and regulations may cause concern to the western investor over market transparency, liquidity, foreign investment restrictions, taxes, and repatriation of profits. This in turn might discourage him/her from entering a market that may have potential for high returns and opportunities to explore a market that holds potentially exploitable inefficiencies. An important part of the analysis will investigate the existence of these inefficiencies. The Amman Financial Market operates in an Islamic country, whereby the religious holidays are based on a lunar calendar, and come at different times of the year every year. Therefore, unlike stock exchanges in the Western world, whereby all holidays are known and set in advance, the Amman Financial Exchange closes its doors on different days of the year every year. Furthermore, the weekend in the Middle East falls on a Thursday and Friday, and not Saturday and Sunday. These facts provide an opportunity to examine such market anomalies as the day of the week, month of the year, and holiday effect. We use the Amman Financial Market Index daily closing prices for the years 1987 through 1995 to perform the market anomaly tests. The results indicate no significant holiday or day of the week effects. However, significant results were obtained for the months of April, July, August and December which we endeavor to explain.