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

What calendar and technical factors drive the size effect? In the June 2012 version of his paper entitled “Predictable Dynamics in the Small Stock Premium”, Valeriy Zakamulin explores the interaction of the size effect with the January effect and both prior-month and prior-year stock market returns. He defines the size effect based on the Small-Minus-Big (SMB) factor of the Fama-French three-factor model of stock returns. A positive (negative) value for the effect means that small (big) stocks outperform big (small) stocks. Using market factor and SMB factor returns from the library of Kenneth French and National Bureau of Economic Research (NBER) business cycle dates during 1927 through 2011 (85 years), he finds that: Keep Reading

Does the S&P 500 implied volatility index (VIX) exhibit systematic behaviors by day of the week? In their February 2012 paper entitled “Day of the Week Effect on the VIX: A Parsimonious Representation”, Maria Gonzalez-Perez and David Guerrero apply methodologies that minimize sensitivity to outliers to examine VIX day-of-the-week patterns. Using daily closes of VIX and the S&P 500 Index during 2004 through 2008, they find that: Keep Reading

Does seasonal fear of stock market weakness or demand for jewelry drive gold prices? In his January 2012 paper entitled “The Seasonality of Gold – Jewelery Demand and Investor Behavior”, Dirk Baur examines calendar month seasonality of the price of gold. Using daily gold bullion spot prices (London fixing) and COMEX gold futures prices during 1981 through 2010 (30 years), along with contemporaneous stock market index and gold jewelry demand data, he finds that: Keep Reading

Is the value premium seasonal? In their 2012 paper entitled “Is the Value Effect Seasonal? Evidence from Global Equity Markets”, Praveen Kumar Das and Uma Rao investigate the intersection of the January effect and the value premium in stock market indexes around the world. They consider market capitalization-weighted value and growth stock portfolios for the following indexes: Asia Pacific; Europe, Australasia and Far East (EAFE); Europe, with and without UK; Scandinavian countries; UK; U.S.; and, Japan. They define value (growth) stocks as the 30% with the highest (lowest) book-to-market ratios within their respective market indexes. Using monthly stock prices and lagged annual book-to-market ratios for stocks in these markets during 1975 (or inception if unavailable that early) through 2007, they find that: Keep Reading

Do more traders than usual move to the sidelines before long weekends to avoid the risk of bad news during the extended downtime, thereby depressing prices before the weekend and elevating them after with re-entry? To investigate, we analyze the behavior of the S&P 500 Index during the three trading days before and the three trading days after three-day weekends. Using daily closing levels of the S&P 500 Index for 1950-2011 (62 years and 351 three-day weekends), we find that: Keep Reading

Do calendar effects found in stock markets also appear in broad stock index futures? In their November 2011 paper entitled “Calendar Anomalies in Stock Index Futures”, Oscar Carchano and Angel Pardo investigate 188 possible cyclical anomalies in S&P 500, DAX and Nikkei index futures contracts (derived from day-of-the-week, month-of-the-year, weekday-of-the-month, week-of-the-month, semi-month, turn-of-the-month, end-of-year, holidays, semi-month-of-the-year, week-of-the-month-of-the-year, Friday the 13th, Halloween effect and quarterly futures expiration). They note that small trading frictions and ease of shorting promote exploitability of anomalies in futures markets. They assume round trip trading frictions of 0.05% for assessing net profitability. Applying tests not dependent on type of return distribution to stock index futures prices from December 1991 through April 2008, they find that: Keep Reading

Do U.S. stock market returns during the first and last hours of normal trading days reliably indicate what comes next? To investigate, we analyze average SPDR S&P 500 (SPY) returns during 9:30-10:30, 9:30-15:00, 9:30-16:00 and 15:00-16:00 for normal trading days during 2007 (bullish year) and 2008 (bearish year). Using a sample of SPY one-minute prices spanning 2007-2008, we find that: Keep Reading

Does the U.S. stock market exhibit predictable return and volatility patterns during the trading day? To investigate, we analyze one-minute prices for SPDR S&P 500 (SPY) over two recent years. Specifically, we calculate average cumulative return, average returns for 15-minute intervals and average standard deviation of one-minute returns during 15-minute intervals over the trading day during each of 2007 (bullish year) and 2008 (bearish year). Using a sample of SPY one-minute prices for 9:30-16:15 spanning 2007-2008 (over 203,000 observations), we find that: Keep Reading

Is the monthly stock return reversal effect currently exploitable? In the August 2011 version of their paper entitled “New Evidence on Short-Term Reversals in Monthly Stock Returns: Overreaction or Illiquidity?”, Chris Stivers and Licheng Sun investigate the persistence, size-sensitivity and seasonality of monthly stock return reversal in the context of three competing explanations: (1) investor overreaction to news (exploitable); (2) market illiquidity (perhaps unexploitable); and, (3) large stocks lead small stocks (exploitable). They evaluate simple value-weighted and equal-weighted prior-month loser-minus-winner (LMW) strategies based on a sort of prior-month returns, and five more complex equal-weighted LMW strategies based on double-sorts of prior-month returns and market capitalizations. Using monthly return and market capitalization data for a broad sample of U.S. stocks and 30 industries over the period February 1926 through December 2010, they find that: Keep Reading