Calendar Effects

Does the U.S. stock market respond predictably to simultaneous earnings announcements of attention-grabbing companies? In their September 2020 paper entitled “Famous Firms, Earnings Clusters, and the Stock Market”, Yixin Chen, Randolph Cohen and Zixuan Wang examine U.S. stock market (E-mini S&P 500 futures) responses to earnings announcement clusters (EAC) comprised of high-attention firms. They focus on the three most prominent pre-open (AM) and three most prominent post-close (PM) EACs in each of January, April, July and October, with each announcement weighted for prominence by associated total number of Dow Jones earnings news articles during the prior calendar year. Using earnings announcements and daily prices for S&P 500 components and minute-by-minute E-mini S&P 500 futures returns during 1999-2018, and associated earnings news articles during 1998-2018, they find that: Keep Reading

Do gold and gold mining stocks exhibit exploitable seasonality? Using monthly closes for spot gold and the S&P 500 Index since December 1974, PHLX Gold/Silver Sector (XAU) since December 1983, AMEX Gold Bugs Index (HUI) since June 1996 and SPDR Gold Shares (GLD) since November 2004, all through September 2020, we find that: Keep Reading

Do exchange-traded funds (ETF) that track asset classes, such as those used in the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS), exhibit reliable seasonalities? To check, we look at average return by calendar month for the following nine ETFs:

• SPDR S&P 500 (SPY)
• iShares Russell 2000 Index (IWM)
• iShares MSCI EAFE Index (EFA)
• iShares MSCI Emerging Markets Index (EEM)
• iShares Barclays 20+ Year Treasury Bond (TLT)
• iShares iBoxx $ Investment Grade Corporate Bond (LQD)
• Vanguard REIT (VNQ)
• SPDR Gold Shares (GLD)
• PowerShares DB Commodity Index Tracking (DBC)

Using monthly dividend-adjusted returns for these ETFs over a common sample period during March 2006 (limited by DBC) through August 2020, we find that: Keep Reading

A subscriber asked: “Some pundits have noted that U.S. stocks have greatly outperformed foreign stocks in recent years. What does the performance of U.S. stocks vs. foreign stocks over the last N years say about future performance?” To investigate, we use the S&P 500 Index (SP500) as a proxy for the U.S. stock market and the ACWI ex USA Index as a proxy for the rest-of-world (ROW) equity market. We consider three ways to relate U.S. and ROW equity returns:

1. Lead-lag analysis between U.S. and ROW annual returns to see whether there is some cycle in the relationship.
2. Multi-year correlations between U.S. and next-period ROW returns, with periods ranging from one to five years.
3. Sequences of end-of-year high water marks for U.S. and ROW equity markets.

For the first two analyses, we relate the U.S. stock market to itself as a control (to assess whether ROW market behavior is distinct). Using end-of-year levels of the S&P 500 Index and the ACWI ex USA Index during 1987 (limited by the latter) through 2019, we find that: Keep Reading

Does the Labor Day holiday, marking the end of summer vacations, signal any unusual return effects by refocusing U.S. stock investors on managing their portfolios? By its definition, this holiday brings with it any effects from the turn of the month. To investigate the possibility of short-term effects on stock market returns around Labor Day, we analyze the historical behavior of the stock market during the three trading days before and the three trading days after the holiday. Using daily closing levels of the S&P 500 Index for 1950 through 2019 (70 observations), we find that: Keep Reading

Do hopes and fears of U.S. election outcomes, 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 July 2020 (nearly 93 years), we find that: Keep Reading

The Trading Calendar presents cumulative return visualizations for the S&P 500 Index across the calendar year and across each calendar month. Three alternative perspectives on U.S. stock market performance by calendar month are: (1) percentage of positive returns; (2) ratio of average return to standard deviation of returns; and, (3) distribution of returns. Using monthly returns for the S&P 500 Index during January 1928 through December 2019 (92 observations per month), we find that: Keep Reading

“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 late May 2020 and contemporaneous 3-month Treasury bill (T-bill) yields, we find that: Keep Reading

Does the Turn-of-the-Month Effect, a concentration of positive stock market returns around the turns of calendar months, work across a broad set of asset classes. To investigate, we measure turn-of-the-month (TOTM) returns for the following nine asset class exchange-traded funds (ETF) used in the “Simple Asset Class ETF Momentum Strategy” and the “Simple Asset Class ETF Value Strategy”:

• PowerShares DB Commodity Index Tracking (DBC)
• iShares MSCI Emerging Markets Index (EEM)
• iShares JPMorgan Emerging Markets Bond Fund (EMB) 
• iShares MSCI EAFE Index (EFA)
• SPDR Gold Shares (GLD)
• iShares Russell 2000 Index (IWM)
• iShares iBoxx $ Investment Grade Corporate Bond (LQD)
• SPDR S&P 500 (SPY)
• iShares Barclays 20+ Year Treasury Bond (TLT)
• Vanguard REIT ETF (VNQ)

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 these ETFs from their respective inceptions (ranging from February 1993 for SPY to December 2007 for EMB) through mid-May 2020, we find that: Keep Reading

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 mid-May 2020, we find that: Keep Reading