Journal of Business & Economics Research Volume 1, Number 10 71 Distributional Characteristics And Stochastic Dominance versus Parametric Analysis In Testing Anomalies In The Emerging Market: Evidence From Jordan Osamah Al-Khazali (E-mail: Kazali@aus.ac.ae), American University of Sharjah, United Arab Emirates Abstract Virtually all previous studies of seasonal variation in stock returns have used mean/variance analysis despite it being well documented that stock returns in developed and emerging markets are non- normally distributed. This paper details the distributional characteristics of emerging Amman financial market returns. Further more, it uses stochastic dominance and parametric analyses to investigate the turn-of-the-year and the-week effects from 1978 to 2001. Results indicate that returns of Amman financial market exhibit substantial deviation from normality. And parametric analysis tests show there is January and week effects. However, stochastic dominance results indicate that January and week effects are not exist in the AFM. This implies that the results of parametric analysis are being driven by violations of parametric assumptions. 1.0 Introduction inancial markets around the world are now becoming more integrated as a result of liberalization programs in many developing countries. Large capital flows take place across international borders to take advantage of any perceived diversification benefits in these countries. Claessens (1995) notes that the total capital flows to all developing countries reached their highest level in 1993. For instance, foreign interest in the Jordanian stock market greatly increased with the Jordanian government’s disclosure of its plan to liberalize the Jordanian stock market in the early 1990s. 1 In fact, 42% of all investors in the Amman financial market (AFM) are considered to be foreign investors. The process of internationalization may hold many implications for both Jordanian and international investors. The movement of capital funds into the developing countries has raised several policy questions. What benefits do investors get by investing in developing markets? If any, what rate of return can an investor realized on investments in developing countries? How well are the developing markets integrated with markets in industrial countries? Do stock markets in these countries price securities efficiently? What is the pattern of common stock returns in developing markets? The answers of these questions can be obtained through an analysis of these markets. Based on the forgoing, this study attempts to investigate the distribution and pattern of stock price movement in the emerging Amman financial market. Previous studies have shown that the standard mean-variance analysis is somewhat problematical with respect to emerging markets, and therefore, emerging market returns cannot be completely characterized by these measures alone. Researchers have stated that there is significant skewness and kurtosis in these returns. 2 Therefore, the results of previous studies, which examined anomalies, in emerging markets may be driven by violations of 1 The Jordanian stock market is called the Amman financial market (AFM). It was established in 1976 and started its first day of business on January 1, 1978. The AFM emerged as one of the fastest-growing capital market in the Middle East. 2 See Bekaert, Erb, Harvey, and Viskanat (1998) for more details. F