"Turn-of-the-Month Effect Persistence and Robustness" indicates that average absolute returns during the turn-of-the-month (TOTM) are strong for both bull and bear markets. Does a strategy of capturing all bull market returns and TOTM returns only during bear markets perform well? To investigate, we apply four strategies to SPDR S&P 500 ETF Trust (SPY) as a tradable proxy for the stock market:
- SPY - buy and hold SPY.
- SMA200 - hold SPY (cash) when SPY closes above (below) its 200-day simple moving average (SMA200) the prior day.
- TOTM - hold SPY from the close five trading days before through the close four trading days after the last trading day of each month and cash at all other times (TOTM).
- SMA200 or TOTM - hold SPY when SPY closes above its 200-day SMA the prior day and otherwise use the TOTM strategy.
We explore sensitivities of these strategies to a range of one-way SPY-cash switching frictions, with baseline 0.1%. Using daily dividend-adjusted SPY from the end of January 1993 through early January 2024 and contemporaneous 3-month Treasury bill (T-bill) yields as the return on cash, we find that:
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