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Does the Thanksgiving holiday, a time of families celebrating plenty, signal any unusual return effects by injecting optimism into U.S. stock investors? To investigate returns around Thanksgiving, we analyze the historical behavior of the S&P 500 index during the three trading days before and the three trading days after the holiday. Using daily closing levels for 1950-2006 (57 events), we find that...
The following chart shows the average daily S&P 500 index returns for the three trading days before (T-3 to T-1) and the three trading days after (T+1 to T+3) Thanksgiving for 1950-2006, with one standard deviation error bars. The mean daily return for all trading days in the sample is 0.03%. Results on average suggest abnormal strength on the trading days just before and just after Thanksgiving. There are very slight indications of weakness before and after this two-day window, but the standard deviations are very large compared to the differences from the mean for these other four days. As usual for daily data, noise generally dominates signal.
To check the stability of the holiday peak, we next look at a "modern" subsample.
The next chart compares the average daily returns for the three trading days before and after Thanksgiving in the entire sample to those occurring since the beginning of 1990 (17 events). This chart has no error bars and uses a finer vertical scale than the preceding chart. The days just before and just after Thanksgiving are again positive, but the gains are less pronounced. Market behaviors before and after this two-day window suggest noise.
The recent subsample shows very low volatility for the day after Thanksgiving.
In summary, 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.
For related research, see Blog Synthesis: Calendar Effects and the Trading Calendar (especially the monthly profiles for November and December).
