Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for December 2020 (Preliminary)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for December 2020 (Preliminary)
1st ETF 2nd ETF 3rd ETF

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.

U.S. Stock Market Returns Around Thanksgiving

Does the Thanksgiving holiday, a time of families celebrating plenty, give U.S. stock investors a sense of optimism that translates into stock returns? To investigate, 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 of the S&P 500 Index for 1950-2019 (70 events), we find that: Keep Reading

Turn of the Year and Size in U.S. Equities

Is there a reliable and material market capitalization (size) effect among U.S. stocks around the turn-of-the-year (TOTY)? To check, we track cumulative returns from 20 trading days before through 20 trading days after the end of the calendar year for the Russell 2000 Index, the S&P 500 Index and the Dow Jones Industrial Average (DJIA) since the inception of the Russell 2000 Index. We also look at full-month December and January returns for these indexes. Using daily and monthly levels of all three indexes during December 1987 through January 2020 (33 December and 33 January observations), we find that: Keep Reading

Three High-attention Earnings Announcement Clusters Drive Market?

Does the U.S. stock market respond predictably to simultaneous earnings announcements of attention-grabbing companies? In their September 2020 paper entitled “Famous Firms, Earnings Clusters, and the Stock Market”, Yixin Chen, Randolph Cohen and Zixuan Wang examine U.S. stock market (E-mini S&P 500 futures) responses to earnings announcement clusters (EAC) comprised of high-attention firms. They focus on the three most prominent pre-open (AM) and three most prominent post-close (PM) EACs in each of January, April, July and October, with each announcement weighted for prominence by associated total number of Dow Jones earnings news articles during the prior calendar year. Using earnings announcements and daily prices for S&P 500 components and minute-by-minute E-mini S&P 500 futures returns during 1999-2018, and associated earnings news articles during 1998-2018, they find that: Keep Reading

SACEMS, SACEVS and Trading Calendar Updates

We have updated monthly allocations and performance data for the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS). We have also updated performance data for the Combined Value-Momentum Strategy.

We have updated the Trading Calendar to incorporate data for October 2020.

Any Seasonality for Gold or Gold Miners?

Do gold and gold mining stocks exhibit exploitable seasonality? Using monthly closes for spot gold and the S&P 500 Index since December 1974, PHLX Gold/Silver Sector (XAU) since December 1983, AMEX Gold Bugs Index (HUI) since June 1996 and SPDR Gold Shares (GLD) since November 2004, all through September 2020, we find that: Keep Reading

Asset Class ETF Seasonalities?

Do exchange-traded funds (ETF) that track asset classes, such as those used in the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS), exhibit reliable seasonalities? To check, we look at average return by calendar month for the following nine ETFs:

  • SPDR S&P 500 (SPY)
  • iShares Russell 2000 Index (IWM)
  • iShares MSCI EAFE Index (EFA)
  • iShares MSCI Emerging Markets Index (EEM)
  • iShares Barclays 20+ Year Treasury Bond (TLT)
  • iShares iBoxx $ Investment Grade Corporate Bond (LQD)
  • Vanguard REIT (VNQ)
  • SPDR Gold Shares (GLD)
  • PowerShares DB Commodity Index Tracking (DBC)

Using monthly dividend-adjusted returns for these ETFs over a common sample period during March 2006 (limited by DBC) through August 2020, we find that: Keep Reading

Distinct and Predictable U.S. and ROW Equity Market Cycles?

A subscriber asked: “Some pundits have noted that U.S. stocks have greatly outperformed foreign stocks in recent years. What does the performance of U.S. stocks vs. foreign stocks over the last N years say about future performance?” To investigate, we use the S&P 500 Index (SP500) as a proxy for the U.S. stock market and the ACWI ex USA Index as a proxy for the rest-of-world (ROW) equity market. We consider three ways to relate U.S. and ROW equity returns:

  1. Lead-lag analysis between U.S. and ROW annual returns to see whether there is some cycle in the relationship.
  2. Multi-year correlations between U.S. and next-period ROW returns, with periods ranging from one to five years.
  3. Sequences of end-of-year high water marks for U.S. and ROW equity markets.

For the first two analyses, we relate the U.S. stock market to itself as a control (to assess whether ROW market behavior is distinct). Using end-of-year levels of the S&P 500 Index and the ACWI ex USA Index during 1987 (limited by the latter) through 2019, we find that: Keep Reading

Stock Market and the National Election Cycle

Some 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, do abnormal returns concentrate in certain quarters? Finally, what does the stock market do in the period immediately before and after a national election? Using daily and monthly S&P 500 Index levels from January 1928 through July 2020 (about 92 years and 23 presidential terms) and focusing on “political quarters” (Feb-Apr, May-Jul, Aug-Oct and Nov-Jan), we find that: Keep Reading

Stock Market 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 2019 (70 observations), we find that: Keep Reading

Monthly Returns During Presidential and Congressional Election Years

Do hopes and fears of U.S. election outcomes, associated political machinations, alter the “normal” seasonal variation in monthly stock market returns? To check, we compare average returns and variabilities (standard deviations of returns) by calendar month for the S&P 500 Index during years with and without quadrennial U.S. presidential elections and biennial congressional elections. Using monthly S&P 500 Index closes over the period December 1927 through July 2020 (nearly 93 years), we find that: Keep Reading

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