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? These blog entries relate to calendar effects in the stock market.

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Models, Trading Calendar and Momentum Strategy Updates

We have updated the S&P 500 Market Models summary as follows:

  • Extended Market Models regressions/rolled projections by one month based on data available through August 2014.
  • Updated Market Models backtest charts and the market valuation metrics map based on data available through August 2014.

We have updated the Trading Calendar to incorporate data for August 2014.

We have updated the the monthly asset class momentum winners and associated performance data at Momentum Strategy.

Stock Returns Around Labor Day

Does the Labor Day holiday, marking the end of summer vacations, signal any unusual return effects by refocusing U.S. stock investors on managing their portfolios? By its definition, this holiday brings with it any effects from the turn of the month. To investigate the possibility of short-term effects on stock market returns around Labor Day, we analyze the historical behavior of the stock market during the three trading days before and the three trading days after the holiday. Using daily closing levels of the S&P 500 Index for 1950 through 2013 (64 observations), we find that: Keep Reading

Optimal Monthly Cycle for Sector ETF Momentum Strategy?

In response to “Optimal Monthly Cycle for Simple Asset Class ETF Momentum Strategy?”, a subscriber asked about the optimal monthly cycle for “Simple Sector ETF Momentum Strategy”, which each month allocates all funds to the one of the following nine Select Sector Standard & Poor’s Depository Receipts (SPDR) exchange-traded funds (ETF) with the highest total return over the past six months :

Materials Select Sector SPDR (XLB)
Energy Select Sector SPDR (XLE)
Financial Select Sector SPDR (XLF)
Industrial Select Sector SPDR (XLI)
Technology Select Sector SPDR (XLK)
Consumer Staples Select Sector SPDR (XLP)
Utilities Select Sector SPDR (XLU)
Health Care Select Sector SPDR (XLV)
Consumer Discretionary Select SPDR (XLY)

To investigate, we compare 21 variations of the strategy based on shifting the monthly return calculation cycle relative to trading days from the end of the month (EOM). For example, an EOM+5 cycle ranks assets based on closing prices five trading days after EOM each month. Using daily dividend-adjusted closes for the sector ETFs from mid-January 1999 through mid-July 2014 (about 186 months), we find that:

Keep Reading

Effects of Execution Delay on Simple Asset Class ETF Momentum Strategy

“Optimal Monthly Cycle for Simple Asset Class ETF Momentum Strategy?” investigates whether using a monthly cycle other than end-of-month (EOM) to determine the winning asset improves performance of the “Simple Asset Class ETF Momentum Strategy”. This strategy each month allocates all funds to the one of the following eight asset class exchange-traded funds (ETF), or cash, with the highest total return over the past five months:

PowerShares DB Commodity Index Tracking (DBC)
iShares MSCI Emerging Markets Index (EEM)
iShares MSCI EAFE Index (EFA)
SPDR Gold Shares (GLD)
iShares Russell 1000 Index (IWB)
iShares Russell 2000 Index (IWM)
SPDR Dow Jones REIT (RWR)
iShares Barclays 20+ Year Treasury Bond (TLT)
3-month Treasury bills (Cash)

In response, a subscriber asked whether sticking with an EOM cycle for determining the winner, but delaying signal execution, affects strategy performance. To investigate, we compare 23 variations of the strategy that all use EOM to determine the winning asset but shift execution from the contemporaneous EOM to the next open or to closes over the next 21 trading days (about one month). For example, an EOM+5 Close variation uses an EOM cycle to determine winners but delays executions until the close five trading days after EOM. Using daily dividend-adjusted opens and closes for the asset class proxies and the yield for Cash from the end of July 2002 (or inception if not available then) through the end of July 2014 (144 months), we find that: Keep Reading

Stock Returns During and Between Earnings Seasons

Does intensity of firm quarterly earnings releases affect stock market behaviors? A reader proposed the following stock market timing strategy based on a strictly calendar-based definition of earnings season: go short (long) the market at the close at the end of the first full week (sixth full week) of each calendar quarter, representing the beginning (end) of earnings season. The hypothesis is that the broad stock market performs poorly during earnings season and well outside of earnings season. Using weekly closes for the S&P 500 Index since January 1950 and for the S&P 500 Implied Volatility Index (VIX) since January 1990, both through June 2014, we find that: Keep Reading

Optimal Monthly Cycle for Simple Asset Class ETF Momentum Strategy?

As explored for a 10-month simple moving average (SMA) in “Optimal Cycle for Monthly SMA Signals?”, subscribers have inquired whether there is a best time of the month for measuring momentum in the “Simple Asset Class ETF Momentum Strategy”. This strategy each month allocates all funds to the one of the following eight asset class exchange-traded funds (ETF), or cash, with the highest total return over the past five months:

PowerShares DB Commodity Index Tracking (DBC)
iShares MSCI Emerging Markets Index (EEM)
iShares MSCI EAFE Index (EFA)
SPDR Gold Shares (GLD)
iShares Russell 1000 Index (IWB)
iShares Russell 2000 Index (IWM)
SPDR Dow Jones REIT (RWR)
iShares Barclays 20+ Year Treasury Bond (TLT)
3-month Treasury bills (Cash)

To investigate, we compare 21 variations of the strategy based on shifting the monthly return calculation cycle relative to trading days from the end of the month (EOM). For example, an EOM+5 cycle ranks assets based on closing prices five trading days after EOM each month. Using daily dividend-adjusted closes for the asset class proxies and the yield for Cash from late July 2002 (or inception if not available then) through early June 2014 (about 143 months), we find that: Keep Reading

Stock Market Behavior Around Mid-year and 4th of July

The middle of the year might be a time for funds to dress their windows and investors to review and revise portfolios. The 4th of July celebration might engender optimism among U.S. investors. Are there any reliable patterns to daily stock market returns around mid-year and the 4th of July? To check, we analyze the historical behavior of the S&P 500 Index from five trading days before through trading days after both the end of June and the 4th of July. Using daily closing levels of the index for 1950-2013 (64 years), we find that: Keep Reading

First and Last Half Hours of Trading Linked?

Do returns for segments of the normal U.S. stock market trading day (9:30 AM to 4:00 PM Eastern time) exhibit exploitable interactions? In the May 2014 version of their paper entitled “Intraday Momentum: The First Half-Hour Return Predicts the Last Half-Hour Return”, Lei Gao, Yufeng Han and Guofu Zhou investigate intraday U.S. stock market predictability based on half-hour segments. They focus on interaction between returns for the first and last half-hour segments. Using half-hour returns for SPDR S&P 500 (SPY) since January 1999 and for PowerShares QQQ (QQQ) since March 1999 and contemporaneous release dates for major economic statistics through December 2012, they find that: Keep Reading

Simulating the Halloween Effect with Recent Data

Does the Sell-in-May/Halloween effect hold in recent data? In their April 2014 paper entitled “Sell in May and Go Away: Still Good Advice for Investors?”, Hubert Dichtl and Wolfgang Drobetz explore whether holding one of several stock indexes (cash) during November-April (May-October) beats buying and holding the index. They focus on sample periods since: (1) liquid index proxies are readily available for each index to both institutional and individual investors; and, (2) first publication in a top academic journal confirming the Halloween effect. They use both conventional regressions and bootstrap simulations. They consider six mostly total return indexes: S&P 500, DAX 30, FTSE 10, CAC 40, EuroStoxx 50 (not total return) and MSCI Emerging Markets (EM). They use a one-month interest rate for the return on cash. They apply a range of switching frictions to assess sensitivity of results to trading costs. Using monthly returns for the specified indexes from the first available January for each through December 2012 (so that they always work with full calendar years), they find that: Keep Reading

Stock Market and the National Election Cycle

Many stock market experts cite the year (1, 2, 3 or 4) of the U.S. presidential term cycle as a useful indicator of U.S. stock market returns. Game theory suggests that presidents deliver bad news immediately after being elected and do everything in their power to create good news just before ensuing biennial elections. Are some presidential term cycle years reliably good or bad? If so, are these abnormal returns concentrated in certain quarters? Finally, what does the stock market do in the period immediately before and after a national election? Using S&P 500 Index data from January 1950 through April 2014 (over 64 years and 16 presidential terms) and focusing on “political quarters” (Feb-Apr, May-Jul, Aug-Oct and Nov-Jan), we find that: Keep Reading

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