Illuminating Market Anomalies: An In-Depth Analysis of the Diwali Effect on the Indian Stock Market

Abstract

This research delves into the intriguing phenomenon known as the "Diwali effect" in the Indian stock market, akin to the widely recognized "Santa Claus rally" observed in Western markets. The study meticulously investigates whether stock prices exhibit a discernible positive trend surrounding the Diwali festival, which holds significant cultural and economic importance in India. Through a thorough analysis of daily returns spanning from 2010 to 2023 across pivotal indices and individual stocks, the aim is to furnish empirical evidence regarding the existence and magnitude of this effect. The findings spotlight a consistent uptick in returns during the Diwali period, particularly noticeable within the domain of large-cap stocks. This observation underscores the substantial influence of festive sentiment on market dynamics, suggesting that Diwali exerts a palpable impact on investor behavior and market outcomes.