Blog - Investing Notes
Blog Synthesis: Calendar Effects
The time of year affects human activities and moods, both through natural variations in the environment and through artificial customs and laws. Do such calendar effects systematically and significantly influence investor/trader attention and mood, and thereby equity prices? Here is a listing of past blog entries related to calendar effects in the stock market.
End-of-Quarter Effect ...evidence suggests some systematic strength the first few days after ends of quarters bracketed by weakness or doldrums before and after, with effects small compared to daily return variability. The fourth quarter pattern is the strongest and most distinctive.
Biotech Seasonality? ...very limited evidence suggests that biotech stocks tend to be weak in late winter, strong in late summer and December, and weak during most of the fall. The late summer strength is most distinctive.
An Annual Worldwide Optimism Cycle (Sell in May)? ...evidence from multiple tests supports belief in an annual optimism cycle as a principal cause of the worldwide outperformance of stocks during November-April compared to May-October.
Trading Around Option Expiration Days ...evidence from simple tests offers some support for belief in a modest positive bias for the broad stock market a few days before and a negative bias just after equity option expiration dates.
Any Recent Day-of-the-Week Anomalies? ...evidence from simple tests on recent data offers little support for belief in day-of-the-week anomalies in broad stock market returns.
Stock Market Behavior Around the Mid-year Point ...best guess for the U.S. stock market is a negative bias a few days before the mid-year point and a modestly positive bias around the turn of the month/quarter through the 4th of July holiday.
Turn-of-the-Month, Options Expiration and Trend ...limited evidence suggests that simple trend conditions may amplify return anomalies related to the turn of the month and options expiration. As usual monthly variability is fairly large compared to differences in means for monthly segments.
"Sell in May" During Bull and Bear Conditions ...the "Sell in May" effect may be stronger during secular (but not cyclical) bear markets. However, there probably is no reward on average for being long stocks during either the good or bad seasons in bear markets. Conversely, there probably are rewards for holding stocks during both the good and bad seasons in bull markets.
The Turn-of-the-Month Effect and Option Strategy Losses ...simple analyses suggest that the TOTM effect may help reduce the loss frequency and average in-the-money expiration loss for selling index put options.
The Sunspot Cycle and Stock Returns (Testing Charles Nenner) ...evidence does not support Charles Nenner's belief in a relationship between sunspot activity and stock returns (intermediated by magnetic effects on investors).
Stock Price as a Future Return Indicator ...investors may be able to exploit a stock price effect by focusing on the associated abnormally positive return during the first calendar quarter.
Turn-of-the-Month Effect in Rising and Falling Markets ...a simple test indicates that the turn-of-the-month effect holds in both rising and falling markets, but is not useful for simple timing during falling markets.
The Stock Market Before and After the Super Bowl ...the U.S. stock market shows little or no predictability with respect to Super Bowl date or outcome.
Hope for Stocks Around Inauguration Days? ...best guess is the U.S. stock market will show first relative strength and then relative weakness in the week preceding presidential inauguration days (less so for Democrats). The week after inauguration tends to be quiet.
The January Barometer Over the Long Run ...evidence from long-run data indicates that the January return for a broad U.S. stock index is weakly predictive of returns for the ensuing February-December. However, the predictive power of January is not appreciably greater in this regard than that of five other months.
The January Effect Over the Long Run ...a broad index of U.S. stocks exhibits noticeable and persistent outperformance in the month of January over the long run, but the effect may be diminishing.
"Sell in May" Over the Long Run ...the conventional wisdom to "Sell in May" has worked well for U.S. stocks on average since the 1950s, but did not consistently work well before then.
Spectral Analysis of Stock Market Cyclicality ...spectral analysis confirms the probable existence of U.S. stock market cycles that coincide with election cycles.
The January Barometer Retested ...evidence indicates that an up/down January is predictive of February-December outperformance/underperformance for the broad U.S. stock market (but not for most other equity markets). However, it may not support an effective market timing strategy as a standalone signal.
The Lunar Cycle and Stock Returns ...the U.S. stock market since 1990 performs better on average around new moons than full moons, and during waxing moons than waning moons. However, the levels of relative outperformance are small compared to market variability, so trading these differences is very risky.
A Two-Year Reversion Effect? ...investors may be able to exploit a two-year reversion effect signaled by past returns of the broad value-weighted U.S. stock market.
Visualization of the Stock Market Across the Typical Presidential Term ...there is some evidence to support a belief in three phases of the U.S. stock market across the typical presidential term: (1) flat at the beginning; (2) strongly advancing in middle; and, (3) moderately advancing at the end. However, the data span a small sample of presidential terms, so confidence in this view is low.
Persistence of the January Effect ...the January effect for small-capitalization stocks persists throughout the past 60+ years.
Monthly Returns During Presidential Election Years ...there is some evidence that the U.S. stock market is unusually weak (strong) during January-May (June-December) of presidential election years.
Turn-of-the-Month Effect Trend and Interaction ...the turn-of-the-month effect likely has no cycles on an annual scale since 1950 and may be disappearing.
Sector Performance by Calendar Month ...calendar effects may vary across stock market sectors, but with only nine full years of data (including the very unusual Internet technology bubble and a multi-year energy rally), these results offer only weak hints for calendar-based sector rotation.
Stock Returns During and Between Earnings Seasons ...evidence does not support a belief that a strategy of going long (short) the broad stock market between (during) earnings seasons reliably beats, or even matches, a buy-and-hold strategy over long periods. Nor does it support a belief that the market tends to be relatively weak during earnings seasons over the long run.
The (Alcoa/Wal-Mart) Earnings Season Trading Strategy ...evidence does not support a belief that a strategy of going long (short) the broad stock market outside of (during) earnings season reliably beats, or even matches, a buy-and-hold strategy. It does support a belief that the market tends to be relatively weak during earnings season.
Intraday/Daily Stock Return Patterns ...traders may be able to shave a few basis points off trading costs by timing buys (sells) based on a tendency for exact daily recurrence of recent intraday lows (highs).
Does the Sunspot Cycle Predict Energy and Grain Prices? ...evidence does not support using sunspot activity to speculate on natural gas and wheat prices over periods of a quarter or a year.
The Stock Market and the National Election Cycle ...there appear to be both long-term and short-term connections between the U.S. national election cycle and stock market performance, with presidential term year 3 (1) the best (worst) and a tendency for a brief election-time rally. However, the subsamples for presidential term year analysis are very small, so confidence in related tendencies is very low.
U.S. Stock Returns Around the Year-End Holidays ...best guess is the U.S. stock market will show relative strength from the day before Christmas through the next six or so trading days, but noise dominates.
Mirror Image Seasonality for Stocks and Treasuries? ...monthly returns for mid-term to long-term Treasuries exhibit a seasonality that is roughly the mirror image of that for stock returns, with November standing out as an exception (strong for stocks and Treasuries).
U.S. Stock Returns Around Thanksgiving ...best guess is that any anomalous U.S. stock market strength around Thanksgiving will come one trading day before and one trading day after the holiday, but noise dominates.
Daily Returns/Volatilities Across the Calendar Year ...these models of daily U.S. stock returns and volatilities by calendar date offer another perspective on baseline expectations for different times of the year.
The Worst and Best Five-day Intervals of the Year ...overall results suggest support for a belief that investors tend to retreat from the market noticeably in September and surge back around the beginning of November.
The Worst and Best Days of the Year ...examination of stock returns by calendar date offers no good evidence of persistently good or bad dates, but it does support a belief that October is especially volatile.
U.S. Stock Returns Around Labor Day ...best guess is that any anomalous U.S. stock market strength around Labor Day will come one trading day before or one trading day after the holiday, but noise dominates.
Buy at the Close and Sell at the Open? ...both individual stocks and broad funds have, on average, appreciated overnight and stalled or declined during the trading day over the past 14 years. The first hour of trading may be the worst hour.
Any Stock Market Anomalies Around Three-day Weekends? ...there are no reliable anomalies regarding the direction of the stock market around three-day weekends since 1990, but the day after such weekends exhibits wider price swings than most other days. There may pent-up demand after a three-day weekend, but the demand is neither reliably long nor reliably short.
Another Test of the Turn-of-the-Month Effect ...historical data from the past 79 months suggests a turn-of-the-month effect for small-capitalization value stocks concentrated in the last five trading days and the first two or four trading days of the month.
A 12-Month Cycle for Stock Returns? ...there is a tendency for stocks worldwide to reprise their monthly return behavior every 12 months, with intracycle reversals, over periods of many years. Results suggest calendar-connected market structures.
The Quarterly Earnings Forecast Walk-Down ...analysts tend to walk their earnings forecasts down as release of actuals approaches, and this walk-down effect is stronger for analysts that have good relationships with management.
Hedge Funds Strongest Around the Turns of Odd Years? ...hedge funds in aggregate perform best around the turn of the year and during odd-numbered years. This seasonality is little different from that of the overall stock market.
Taking the Summer Doldrums Out of the Turn-of-the-Month Effect ...excluding the summer doldrums from a Turn-of-the-Month Effect strategy may enhance returns.
Test of the Turn-of-the-Month Effect ...S&P 500 index behavior over the past 16+ years indicates a fairly consistent and economically significant turn-of-the-month effect.
The Turn-of-the-Month Effect ...the significant concentration of excess stock market returns around the turns of calendar months is a long-standing and persistent effect.
Is the Year's Boo! Already on the Books? ...there is probably no Halloween effect distinct from the (diminishing) January effect in the U.S. stock market.
The After-January Effect?: In case you are sick of hearing about the January effect…
Reader Contribution to Trading Calendar Analysis ...Aongus has generally confirmed across indices the seasonality trends found in our Trading Calendar analysis.
January Effect Alive and Well? ...history still favors small-capitalization value stocks in January.
Comprehensive Analysis of Calendar Effects ...calendar effects used to be but mostly aren't any more.
Testing the Halloween Effect ...the average investor in the U.S. equities will have difficulty avoiding relatively poor returns during the summer. They should focus on the winter months.
Explaining Summer Doldrums ...investors should be inclined to sell speculative U.S. stocks in late spring and buy them in the fall.
In summary, there is enough evidence for some calendar effects that investors/traders should consider them when making major portfolio changes, especially for stocks of small-capitalization firms.
See our Trading Calendar for annual and monthly profiles of S&P 500 index behavior.
