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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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 2014 (65 observations), we find that: Keep Reading

Value Strategy Update

We have updated the the monthly asset class ETF value strategy weights and associated performance data at Value Strategy.

Momentum Strategy and Trading Calendar Updates

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

We have updated the Trading Calendar to incorporate data for August 2015.

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 July 2015 (more than 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

Overnight Momentum-informed Overnight Trading

Can investors refine and exploit the upward bias of overnight stock returns? In the July 2015 version of her paper entitled “Night Trading: Lower Risk but Higher Returns?”, Marie-Eve Lachance presents a way of sorting stocks by strength of overnight return bias and investigates gross and net profitability of associated overnight-only investment strategies. Specifically, she each month regresses daily overnight returns on total returns over the past year to measure an Overnight Bias Parameter (OBP) for each stock. She then forms portfolios based on monthly OBP sorts, focusing on the portfolio of stocks with significantly positive OBPs. She estimates trading frictions by: (1) assuming market-on-open and market-on-close trades, avoiding bid-ask spreads; and, (2) estimating broker charges from the lowest fees available in the U.S. in 2014. Using daily overnight (close-to-open) and intraday (open-to-close) total returns, trading data and characteristics for a broad sample of reasonably liquid U.S. stocks during 1995 through 2014, she finds that: Keep Reading

Short-term VIX Calendar Effects

Does the S&P 500 implied volatility index (VIX) exhibit systematic behaviors by day of the week, around turn-of-the-month (TOTM) or around options expiration (OE)? If so, are the behaviors exploitable? Using daily closing levels of VIX since January 1990, daily opening levels of VIX since January 1992 and daily reverse split-adjusted opening and closing levels of iPath S&P 500 VIX Short-Term Futures ETN (VXX) since February 2009, all through early July 2015, we find that: Keep Reading

Effects of Execution Delay on SACEVS

“Effects of Execution Delay on Simple Asset Class ETF Momentum Strategy” investigates how delaying signal execution affects strategy performance. How does execution delay affect the performance of the Best Value and Weighted versions of the “Simple Asset Class ETF Value Strategy” (SACEVS)? These strategies each month allocate funds to the following asset class exchange-traded funds (ETF) according to valuations of term, credit and equity risk premiums, or to cash if no premiums are undervalued:

3-month Treasury bills (Cash)
iShares 7-10 Year Treasury Bond (IEF)
iShares iBoxx $ Investment Grade Corporate Bond (LQD)
SPDR S&P 500 (SPY)

To investigate, we compare 21 variations of each strategy that all use end-of-month (EOM) to determine the asset allocations but shift execution from the baseline EOM+1 close to subsequent closes up to EOM+21. For example, an EOM+5 variation uses an EOM cycle to determine allocations but delays execution until the close five trading days after EOM. Using daily dividend-adjusted closes for the above ETFs and daily yields for Cash during August 2002 through June 2015 (154 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 U.S. 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 1950-2014 (65 years), we find that: Keep Reading

Bonds During the Off Season?

As implied in “Mirror Image Seasonality for Stocks and Treasuries?”, have bonds been better than stocks during the “Sell-in-May” months of May through October? Are the behaviors of government, corporate investment grade and corporate high-yield bonds over this interval similar? To investigate, we consider the seasonal behaviors of:

SPDR S&P 500 (SPY)
Vanguard Intermediate-Term Treasury (VFITX)
Fidelity Investment Grade Bond (FBNDX)
PIMCO High Yield D (PHYDX)

Using dividend-adjusted monthly prices for these funds during January 1993 (limited by inception of SPY) through May 2015, we find that: Keep Reading

Optimal Rebalancing Frequency/Months?

Is there a preferred frequency and are there preferred month(s) for rebalancing conventional asset class portfolio holdings? To investigate we consider annual, semiannual and quarterly rebalancing of a simple portfolio targeting a 60-40 stocks-bonds mix. We consider all possible combinations of calendar month ends as rebalancing points. Because of estimation complexity, we ignore rebalancing (and dividend-reinvestment) frictions and tax implications, thereby giving an advantage to frequent rebalancing. Using dividend-adjusted monthly closes for SPDR S&P 500 (SPY) to represent stocks and Vanguard Total Bond Market Index (VBMFX) to represent bonds over the period January 1993 (SPY inception) through April 2015 (268 months or about 22 years), we find that: Keep Reading

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ETF Momentum Signal
for September 2015 (Final)

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