Calendar Effects

Is it possible that some widely acknowledged calendar effects emerge from data only because of overlap with a few “real” calendar effects? In their December 2009 paper entitled “An Anatomy of Calendar Effects”,  Stefan Grimbacher, Laurens Swinkels and Pim Van Vliet examine interactions among five calendar effects: Halloween, January, turn-of-the-month, weekend and holiday. Specifically, they employ tests that control for all five effects simultaneously to determine whether any dominate or disappear in isolation. Using daily returns for the U.S. stock market in excess of the 30-day Treasury bill yield over the period July 1963 through December 2008, they conclude that: Keep Reading

A reader noted and asked: “I frequently read that one should not trade at the open, because the smart traders manipulate opening prices to scalp the naive. Does it really help to wait a half hour (or whatever) before trading?” Keep Reading

Is there a common factor explaining multiple widely accepted stock return anomalies? In the March 2010 version of their paper entitled “Do Five Asset Pricing Anomalies Share a Common Mispricing Factor?Multifaceted Empirical Analyses of Failure Risk Proxies, External Financing, and Stock Returns” , Joseph Ogden and Julie Fitzpatrick investigate the ability of a single factor, involving operating profit and external financing, to explain five stock return  anomalies: (1) the failure-risk anomaly; (2) earnings momentum; (3) the external financing (stock buybacks/secondary offerings) anomaly; (4) the accruals anomaly; and, (5) the book-to-market anomaly.  Using monthly stock return and firm fundamentals data for a broad sample of U.S. stocks to form 205 portfolios over the period 1974-2008 (60,301 firm-year observations), they find that: Keep Reading

Are stock returns anomalous during option expiration weeks? In the March 2010 version of their paper entitled “Stock Returns during Option Expiration Weeks and the Option-Stock Volume Ratio”, Chris Stivers and Licheng Sun investigate the behavior of stock returns during option expiration weeks for both large individual stocks and various stock indexes, focusing on individual large-cap stocks with actively traded options during 1996-2008. They also examine a longer 1983-2008 period (commencing with the introduction of stock index options) and a 1948-1972 pre-option market period. Using weekly stock return/trading volume and option trading volume data as available over these periods, they conclude that: Keep Reading

A reader asked: “I am interested in finding a strategy to day-trade around the opening of trading. I would prefer the first half hour but would not be opposed to looking at strategies holding until the close or even the next day. With the high-frequency traders becoming the new liquidity providers, day traders like me aren’t left with much of an edge. I think the first half hour may still hold some opportunity. Do you know of any first half hour plays that I might start to build from?” Keep Reading

A reader asked: “Do you have any data and/or analysis of Norman G. Fosback’s performance?” Keep Reading

Do sleep disruptions from switches between standard time and daylight saving time reliably affect the return on the next trading day? In their September 2009 paper entitled “The Daylight Saving Time Anomaly in Stock Returns: Fact or Fiction?”, Russell Gregory-Allen, Ben Jacobsen and Wessel Marquering revisit this question based on a much larger sample than used in prior studies. Using daily returns of stock market indexes around switches to/from daylight saving time for 22 countries around the world spanning 1966-2005 (1,150 switches, tilted toward later decades), they conclude that: Keep Reading

A reader asked: “I am curious how reliable some of the factors referenced in the Stock Trader’s Almanac are, but I see no reference to it on your site. Could you review the book and/or the primary strategies in the book? I would be curious to have your perspective on how rigorous its analysis is.” Keep Reading

Can traders reliably turn a profit by providing liquidity to anxious after-hours counterparts and then closing the trade at the open? In his September 2009 paper entitled “The Cost of Illiquidity: Evidence from After-Hours Trading”, Brian Walkup quantifies price reversal/momentum when the market opens for stocks experiencing price movements during preceding after-hours trading. Using a large sample of after-hours trades from the three major U.S. stock exchanges during 2006, he concludes that: Keep Reading

The January Barometer (as goes January, so goes the rest of the year) seems persistent for U.S. stocks. Is there a best way to exploit it? In their July 2009 paper entitled “What’s the Best Way to Trade Using the January Barometer?”, Michael Cooper, John McConnell and Alexei Ovtchinnikov update their prior analysis of the January Barometer through 2008 and explore how an investor can best exploit its signal. Specifically, they consider five alternative strategies (all ignoring trading costs and taxes): (1) long stocks all the time; (2) long stocks in all Januaries and long (short) stocks during February-December when the return for January is positive (negative); (3) long stocks in all Januaries and long stocks (Treasury bills) during February-December when the return for January is positive (negative); (4) long Treasury bills all the time; and, (5) long stocks in all Januarys and long Treasury bills the rest of all years. Using monthly U.S. stock returns and one-month Treasury bill (or equivalent) yields over the period 1857-2008 (152 years), they conclude that: Keep Reading