“Sell in May” Still Working?
August 1, 2012 - Calendar Effects
Does the conventional wisdom of avoiding stocks during May through October work in recent years? In their July 2012 paper entitled “‘Sell in May and Go Away’ Just Won’t Go Away”, Sandro Andrade, Vidhi Chhaochharia and Michael Fuerst test the sell-in-May anomaly (or Halloween effect) based on data unambiguously available only after publication of the anomaly. They compute returns in adjacent six-month periods, the beginning of May to end of October and the beginning of November to end of April. They also test a trading strategy that: (1) from the end of April through the end of October, invests a fraction k (for k equals 3/4, 1/2, 1/3 and 0) of the portfolio in the stock market index and the balance in one-month Treasury bills (T-bills); and, (2) from the end of October through the end of April, invests 2-k in the stock market index by borrowing 1-k at the T-bill rate. Using total returns for 37 country stock market index and the MSCI World Index during during May 1970 through October 1998 (replicating prior research) and November 1998 through April 2012 (new data), along with contemporaneous T-bill yields for the latter, they find that: Keep Reading