Calendar Effects

“Seasonal Strategy for QQQ?” finds an interesting even year-odd year effect in Invesco QQQ Trust (QQQ) annual returns. The Trading Calendar and “Monthly Returns During Presidential and Congressional Election Years” find notable differences in S&P 500 Index performances for even years and odd years. A plausible culprit is federal elections. Is this effect growing over time? To investigate, we look at four indexes over their full histories:

1. Shiller’s S&P Composite Index during 1871 through 2024 (153 annual returns).
2. The S&P 500 Index during 1927 through 2024 (97 returns).
3. The NASDAQ 100 Index during 1985 through 2024 (39 returns).
4. The Russell 200 Index during 1987 through 2024 (37 returns).

For each index, we calculate annual returns for even years and odd years and look at the separate trends in these returns over time. Using the selected end-of-year index levels, we find that: Keep Reading

Can traders generate attractive returns by frontrunning orders of large funds as they predictably rebalance from past winning asset classes to past losing asset classes? In their January 2025 paper entitled “The Unintended Consequences of Rebalancing”, Campbell Harvey, Michele Mazzoleni and Alessandro Melone investigate market impacts of asset class rebalancing based on deviations from allocation targets or calendar schedules. Specifically, they use daily returns for E-mini S&P 500 Index (SP500) and 10-year U.S. Treasury note (T-note) futures with shortest maturities to track deviations of a 60% stocks/40% bonds (60/40) portfolio from target weights. When stocks (bonds) outperform their weights, rebalancers must sell stocks (bonds) and buy bonds (stocks) to rebalance. The larger the deviation from 60/40, the greater the likelihood and magnitude of rebalancing. They consider two rebalancing rules:

1. Threshold – rebalance when portfolio weights drift a specified distance from 60/40 targets to manage trading frictions. They use an average of the rebalancings implied by regression analyses of distances in the range 0% to 2.5%.
2. Calendar – rebalance at monthly intervals (the last week of each month) to meet cash flow needs.

They construct a portfolio that anticipates activity of Threshold and Calendar rebalancers by taking either a long (short) position in SP500 futures and a short (long) position in T-note futures. They rescale the Threshold signal such that the Threshold and Calendar rebalancing signals contribute roughly equal risk to the overall strategy. Using daily SP500 and T-note nearest-maturity futures prices during mid-September 1997 (E-mini inception) through mid-March 2023, they find that: Keep Reading

Do investors swing toward optimism around U.S. presidential inauguration days, focusing on future opportunities? Or, does the day remind investors of political uncertainty and conflict? To investigate, we analyze daily returns of the S&P 500 Index around inauguration day. We consider subsamples of no party change and party change. Using inauguration dates since 1928 and daily S&P 500 Index levels during 1928 through most of 2024, we find that: Keep Reading

Do hopes and fears of U.S. election outcomes, and associated political machinations, alter the “normal” seasonal variation in monthly stock market returns? To check, we compare average returns and variabilities (standard deviations of returns) by calendar month for the S&P 500 Index during years with and without quadrennial U.S. presidential elections and biennial congressional elections. Using monthly S&P 500 Index closes over the period December 1927 through September 2024 (nearly 97 years), we find that: Keep Reading

The Trading Calendar looks at S&P 500 Index behaviors over the calendar year, finding some consistent patterns. Are there any comparable insights from movements of the U.S. Treasury 10-year constant maturity note (T-note) yield over the calendar year? To investigate, we track T-note yield and cumulative change in T-note yield by business day over all available calendar years, even (U.S. national election) years, odd years and presidential election years. Using daily T-note yield during January 1962 through early September 2024, we find that: Keep Reading

Do stock markets following predictable long boom and bust periods? In the August 2024 draft of their paper entitled “The Anatomy of Lost Stock Market Decades”, Todd Feldman and Brian Yang examine the regularity/frequency of bull periods (strong gains) and lost periods (no gains) of at least 10 years. They also test two metrics to identify when the S&P 500 Index is in a bull or lost period: (1) the ratio of the S&P 500 Index level to a dividend discount model (DDM) valuation of the index; and, (2) an exponential cumulative loss metric calibrated via a 20-year moving average (weighting recent losses more than older losses to sharpen regime shift detection). Using monthly stock market levels from Global Financial Data for the U.S., Canada, Japan, Australia, Germany and France and Robert Schiller’s data for the S&P Composite Index from the 1800s through 2023, they find that:

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Does the CBOE Volatility Index (VIX) exhibit exploitable seasonality? To investigate, we calculate by calendar month and compare average monthly:

• Change in VIX.
• Return for ProShares VIX Short-Term Futures ETF (VIXY).
• Return for ProShares Short VIX Short-Term Futures ETF (SVXY).

Using monthly closes of VIX since January 1990, monthly split-adjusted closes for  for VIXY since inception in January 2011 and monthly split-adjusted closes for SVXY since inception in October 2011, all through June 2024, we find that: Keep Reading

Are there interactions between stock return momentum and days of the week? In their March 2024 paper entitled “Same-Weekday Momentum”, Zhi Da and Xiao Zhang investigate how momentum interacts with days of the week. They first perform regression tests to evaluate abilities of same-day and other-day past returns to predict day-of-the-week momentum. They then evaluate economic significance of findings by comparing three trading strategies:

1. Standard Momentum – each month, reform a value-weighted hedge portfolio that is long (short) stocks that are in the top (bottom) tenth, or decile, of stocks with the highest (lowest) average monthly returns from 12 months ago to one month ago.
2. Same-Weekday Momentum – each weekday during a month, reform a value-weighted hedge portfolio that is long (short) the decile of stocks with the highest (lowest) average daily returns on the same day of the week from 12 months ago to one month ago.
3. Other-Weekday Momentum – each weekday during a month, reform a value-weighted hedge portfolio that is long (short) the decile of stocks with highest (lowest) average daily returns on other weekdays from 12 months ago to one month ago.

Using daily data for publicly listed U.S. stocks, excluding those priced less than $5 and those in the bottom tenth of NYSE market capitalizations, during 1963 through 2021 and daily equity fund/institutional trading data as available, they find that: Keep Reading

Does the U.S. stock market have a predictable pattern of returns around ends of calendar quarters? Do funds deploy cash to bid stocks up at quarter ends to boost portfolio values in quarterly reports (with subsequent reversals)? Or, do they sell stocks to raise cash for fund redemptions? Is any end-of-quarter effect distinct from the Turn-of-the-Month (TOTM) effect? To investigate, we calculate average daily stock market (S&P 500 Index) returns before and after ends of calendar quarters and compare those returns to TOTM returns. Using daily closes of the S&P 500 Index during January 1928 through May 2024, we find that: Keep Reading

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% 1-way SSO-cash switching frictions and look at sensitivity of findings to variation in the assumed level of frictions. Using daily dividend/split-adjusted prices for SSO during late June 2006 through early April 2024, we find that: Keep Reading