Santa Claus rally refers to statistically higher positive returns in the stock markets for the last five trading days of December and the first two days of the following January. Nippani, Washer, and Johnson (2015) were the first to study this phenomenon. Using difference of means tests, the authors found statistically significant positive returns in the stock markets of eight Christian-based and eight non-Christian-based countries. In a later study, Washer, Nippani, and Johnson (2016) found that smaller firm portfolios exhibited higher returns than their larger counterparts in the U.S. market over the period 1926–2014.
This study extends their analysis by examining, in depth, the Indian stock market. The MSCI SMALL, BSE 100, BSE 500, NIFTY and the BSE SENSEX are analysed separately to examine for the Santa Claus rally effect. In case of the BSE SENSEX, the study also examines for the effect during the years 1979–1991, the pre-liberalisation period. The significant results of the study are as follows: (1) The Santa Claus rally exists in all the indices studied for the post-1991 period; (2) It was not evident in the pre-liberalisation period in the BSE SENSEX; (3) There is a size effect associated with the Santa Claus rally in eight sector-based sub-indices of Energy, Finance, Health Care, Infotech, Oil, Power, Telecom and Utilities. The results are robust based on mean difference tests, non-parametric Mann-Whitney tests, which check for differences based on medians, and regression analysis where the coefficients are adjusted for autocorrelation and heteroskedasticity.
