Blog - Investing Notes

October 30, 2007 - The Worst and Best Five-day Intervals of the Year

In our blog entry of 10-23-07, we identify the worst and best calendar days of the year on average for the U.S. stock market. In this entry, we widen the aperture to find the worst and best five-day trading periods on average by the calendar. Using daily closes for the S&P 500 index during 1/3/50-10/19/07, we find that...

The following table shows the 15 worst five-day trading periods for U.S. stocks, by starting calendar date, based on average returns for the S&P 500 index over three periods: (1) the total sample since 1950; (2) a 1950-1989 subsample; and, (3) a recent subsample since 1990. Results suggest that the middle to end of September, and possibly the middles to ends of July and October, are particularly unfavorable for stocks. Excluding 1987 as an outlier leaves only three of the October dates in each of the the total sample and the 1950-1989 subsample (with eight September entries then in the latter). The recent subsample drives the presence of July.

The average returns for all five-day trading intervals range from 0.18% to 0.20% for these three periods. Volatility is highest in the recent subsample.

The next table shows the 15 best five-day trading periods for U.S. stocks, by starting calendar date, based on average returns for the S&P 500 index over the same three periods. Results suggest that the October-November turn-of-the-month and the year-end holidays are particularly favorable for stocks. Excluding 1987 has little effect on these "best" lists.

Note that starting dates close together involve overlapping data, with the risk that the significance of results may appear overstated.

In summary, 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.

For related research, see Blog Synthesis: Calendar Effects and the Trading Calendar.