Calendar Effects

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

Does the conventional wisdom to “sell in May,” with the average stock return during November-April far exceeding that for May-October, work for the world equity market? If so, why? In the November 2005 version of his paper entitled “The Optimism Cycle: Sell in May”, flagged by a reader, Ronald Doeswijk examines the hypothesis that this seasonal pattern derives from an annual optimism cycle. Using monthly return data for markets, sectors and Initial Public Offerings (IPO) over the period 1970 through 2003 (34 years), he concludes that: Keep Reading

We previously found that Russell 2000 Index returns have tended to be negative during the interval from options expiration (OE) to the turn of the month (TOTM), strongly positive during TOTM and near zero from TOTM to OE. Might the index trend leading up to these segments, defined by the index being over or under a simple moving average (SMA), discriminate the strength of monthly segment effects? Are the results robust? Using daily opening and closing levels of the Russell 2000 index over the period September 1987 through April 2009 (259 complete months), we find that: Keep Reading

The Strategy Test presently focuses on iteratively selling put options on the Russell 2000 Index with less than one month to expiration to capture the volatility risk premium. The test strategy seeks to exploit the turn-of-the-month (TOTM) effect to enhance this capture. Are there characteristics of index returns from options expiration (OE) to TOTM, during TOTM and from TOTM to OE that might inform options moneyness and position adjustment decisions? Using daily opening and closing levels of the Russell 2000 Index over the period September 1987 through April 2009 (259 complete months), we find that: Keep Reading

Do investors fool themselves into thinking a low share price means a cheap price? In other words, are the simple nominal prices of stocks predictive of their future returns? In their December 2008 paper entitled “Is Share Price Relevant?”, Soosung Hwang and Chensheng Lu investigate this question by measuring the performance of portfolios formed annually by sorting listed common stocks by nominal price into five ranges: less than or equal to $5, $5 to $10, $10 to $15, $15 to $20, and more than $20. Using delisting-adjusted price data for a broad sample of NYSE/AMEX/NASDAQ common stocks over the period July 1963 through December 2006, they conclude that: Keep Reading

Are there reliable periodicities in U.S. stock returns tied to national election cycles? In their October 2008 paper entitled “Financial Astrology: Mapping the Presidential Election Cycle in US Stock Markets”, Wing-Keung Wong and Michael McAleer apply spectral analysis to identify and quantify cycles in U.S. stock market returns, including a presidential election cycle. Using weekly S&P 500 index data for the period 1965-2003, they conclude that: Keep Reading