Stock Returns Around New Year’s Day

Does the New Year’s Day holiday, a time of replanning and income tax positioning, systematically affect investors in a way that translates into stock returns? To investigate, we analyze the historical behavior of the S&P 500 Index during the five trading days before and the five trading days after the holiday. Using daily closing levels of the S&P 500 index for 1950-2010 (61 events, with 2009 corresponding to New Year’s Day 2010), we find that:

The following chart shows the average daily S&P 500 index returns for the five trading days before (NY-5 to NY-1) and the five trading days after (NY+1 to NY+5) New Year’s Day over the entire sample period, with one standard deviation variability ranges. The mean daily return for all trading days in the sample is 0.03%. Results on average suggest abnormal strength from the week before through two trading days after New Year’s Day, followed by a fade. As usual for daily data, noise generally dominates signal.

To check the reliability of the post-holiday strength, we look at two subsamples.

The next chart compares the average daily returns for the five trading days before and after New Year’s Day for two subsamples: 1950-1989 (40 events), and 1990-2010 (21 events). This chart has no variability ranges and uses a finer vertical scale than the preceding one. The subsamples mostly confirm the results found above.

In summary, best guess is that any anomalous U.S. stock market strength around New Year’s Day will start the week before and persist for two trading days after the holiday, followed by a fade, but noise generally dominates.

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