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Calendar Effects

The time of year affects human activities and moods, both through natural variations in the environment and through artificial customs and laws. Do such calendar effects systematically and significantly influence investor/trader attention and mood, and thereby equity prices? These blog entries relate to calendar effects in the stock market.

Does the Turn-of-the-Month Effect Work for Sectors?

A reader inquired whether the Turn-of-the-Month Effect, a concentration of positive stock market returns around the turns of calendar months, works for U.S. stock market sectors. To investigate, we measure turn-of-the-month (TOTM) returns for the nine sector exchange-traded funds (ETF) defined by the Select Sector Standard & Poor’s Depository Receipts (SPDR), all of which have traded since December 1998:

  • Materials Select Sector SPDR (XLB)
  • Energy Select Sector SPDR (XLE)
  • Financial Select Sector SPDR (XLF)
  • Industrial Select Sector SPDR (XLI)
  • Technology Select Sector SPDR (XLK)
  • Consumer Staples Select Sector SPDR (XLP)
  • Utilities Select Sector SPDR (XLU)
  • Health Care Select Sector SPDR (XLV)
  • Consumer Discretionary Select SPDR (XLY)

We define TOTM as the eight-trading day interval from the close five trading days before the first trading day of a month to the close on the fourth trading day of the month. Using daily dividend-adjusted closes for the sector ETFs and for S&P Depository Receipts (SPY) as a benchmark from December 1998 through early February 2022, we find that: Keep Reading

Long-term SMA and TOTM Combination Strategy

“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 S&P Depository Receipts (SPY) as a tradable proxy for the stock market:

  1. Buy and hold SPY.
  2. Hold SPY (cash) when SPY closes above (below) its 200-day simple moving average (SMA200).
  3. 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).
  4. Hold SPY when SPY closes above its 200-day SMA and otherwise use the TOTM strategy (SMA200 or TOTM).

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 February 2022 and contemporaneous 3-month Treasury bill (T-bill) yields, we find that: Keep Reading

Turn-of-the-Month Effect Persistence and Robustness

Is the Turn-of-the-Month (TOTM) effect, a concentration of relatively strong stock market returns around the turns of calendar months, persistent over time and robust to different market conditions. Does it exist for all calendar months? Does it persist throughout the U.S. political cycle? Does it work for different equity indexes? To investigate, we define TOTM as the interval from the close five trading days before to the close four trading days after the last trading day of the month (a total of eight trading days, centered on the monthly close). Using daily closes for the S&P 500 Index since January 1928 and for the Russell 2000 Index since mid-September 1987, both through early February 2022, we find that: Keep Reading

SACEVS and SACEMS Performance by Calendar Month

A subscriber asked whether the Simple Asset Class ETF Momentum Strategy (SACEMS) exhibits monthly calendar effects. In investigating, we also look at the Simple Asset Class ETF Value Strategy (SACEVS)? We consider the Best Value (most undervalued asset) and Weighted (assets weighted by degree of undervaluation) versions of SACEVS. We consider the Top 1, equally weighted (EW) Top 2 and EW Top 3 versions of SACEMS, which each month equally weights the top one, two or three of nine ETFs/cash with the highest total returns over a specified lookback interval. We further compare seasonalities of these strategies to those of their benchmarks: for SACEVS, a monthly rebalanced 60% stocks-40% bonds portfolio (60-40); and, for SACEMS an equally weighted and monthly rebalanced portfolio of the SACEMS universe (EW All). Using monthly gross total returns for SACEVS since August 2002 and for SACEMS since July 2006, both through January 2022, we find that:

Keep Reading

Stock Market and the Super Bowl

Investor mood may affect financial markets. Sports may affect investor mood. The biggest mood-mover among sporting events in the U.S. is likely the National Football League’s Super Bowl. Is the week before the Super Bowl especially distracting and anxiety-producing? Is the week after the Super Bowl focusing and anxiety-relieving? Presumably, post-game elation and depression cancel between respective fan bases. Using past Super Bowl dates since inception and daily/weekly S&P 500 Index levels for 1967 through 2021 (55 events), we find that: Keep Reading

Sector Performance by Calendar Month

Trading Calendar presents full-year and monthly cumulative performance profiles for the overall U.S. stock market (proxied by the S&P 500 Index) based on average daily behavior. Do monthly behaviors of U.S. stock market sectors deviate from the overall market profile? To investigate, we consider the nine Select Sector Standard & Poor’s Depository Receipts (SPDR) exchange-traded funds (ETF), all of which originate in December 1998:

Materials Select Sector SPDR (XLB)
Energy Select Sector SPDR (XLE)
Financial Select Sector SPDR (XLF)
Industrial Select Sector SPDR (XLI)
Technology Select Sector SPDR (XLK)
Consumer Staples Select Sector SPDR (XLP)
Utilities Select Sector SPDR (XLU)
Health Care Select Sector SPDR (XLV)
Consumer Discretionary Select SPDR (XLY)

Using monthly dividend-adjusted closing prices for these ETFs, along with contemporaneous data for SPDR S&P 500 (SPY) as a benchmark, during December 1998 through December 2021, we find that: Keep Reading

U.S. Stock Market Performance by Intra-year Phase

The full-year Trading Calendar indicates that the U.S. stock market has three phases over the calendar year, corresponding to calendar year trading days 1-84 (January-April), 85-210 (May-October) and 211-252 (November-December). What are typical stock market returns and return variabilities for these phases? Using daily S&P 500 Index closes from the end of December 1927 through December 2021, we find that: Keep Reading

Turn-of-the-Month Effect Applied to SSO

Referring to “Turn-of-the-Month Effect Persistence and Robustness”, a subscriber asked about applying the Turn-of-the-Month (TOTM) effect to ProShares Ultra S&P500 (SSO).  As in the referenced research, we define TOTM as the interval from the close five trading days before to the close four trading days after the last trading day of the month (a total of eight trading days, centered on the monthly close). We compare a strategy of holding SSO only during TOTM to buying and holding SSO. We initially assume 0.1% one-way SSO-cash switching frictions and look at sensitivity of findings to variation in the assumed level of frictions. Using daily dividend-adjusted prices for SSO during late June 2006 through early December 2021, we find that: Keep Reading

Combining Defensive-in-May and Sector Momentum

In response to “Combining Defensive-in-May and Sector Reversion”, a subscriber requested testing of a strategy combining seasonal effects (cyclical sectors during November through April and defensive sectors during May through October) and sector momentum. Cyclical and defensive choices are:

At the end of each October, the strategy buys the one cyclical fund with the highest return over some past interval (betting on momentum). At the end of each April, the strategy sells the cyclic fund and buys the one defensive fund with the highest return over the past interval (again, betting on momentum). For convenience, we use a 6-month lookback interval to rank funds. We use buy-and-hold SPDR S&P 500 (SPY) as a benchmark. We focus on semiannual return statistics, along with compound annual growth rates (CAGR) and maximum drawdowns (MaxDD). Using semiannual dividend-adjusted prices for the selected funds during October 2006 (limited by availability of VIG) through October 2021 (defining the first and last available semiannual intervals), we find that: Keep Reading

Stock Returns Around New Year’s Day

Does the New Year’s Day holiday, a time of replanning and income tax positioning, systematically affect investors in a way that translates into U.S. stock market returns? To investigate, we analyze the historical behavior of the S&P 500 Index during the five trading days before and the five trading days after the holiday. Using daily closing levels of the S&P 500 Index around New Year’s Day for 1951-2021 (71 observations), we find that: Keep Reading

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