Calendar Effects

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 2018 (52 events), we find that: Keep Reading

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 during 1950 through 2018 (69 years), we find that: Keep Reading

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 its average daily behavior since 1950. 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 2018 (20 years), we find that: Keep Reading

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 1951-2018 (68 observations), we find that: Keep Reading

Does the Christmas holiday, a time of putative good will toward all, give U.S. stock investors a sense of optimism that translates into stock returns? To investigate, we analyze the historical behavior of the S&P 500 Index during five trading days before through five trading days after the holiday. Using daily closing levels of the S&P 500 Index for 1950-2017 (68 events), we find that: Keep Reading

As a follow-up to “Sunspot Cycle and Stock Market Returns” a reader asked: “Sunspot activity does have a direct relationship to weather. Could one speculate on the agriculture market using the sunspot cycle?” To investigate, we relate sunspot activity to the fairly long U.S. Producer Price Index (PPI) for grains. Using monthly averages of daily sunspot counts and monthly PPI for grains during January 1926 (limited by PPI data) through October 2018, we find that: Keep Reading

A reader asked whether Charles Nenner, self-described as “the talk of Wall Street since accurately predicting some of the biggest moves in the Markets over the past few years,” accurately forecasts equity and commodity markets. We consider the following:

• In his July 2007 discussion of the “Nenner Methodology at the Bloomberg Studio”, Charles Nenner cites sunspot activity as a specific key indicator for equity returns. Per this source, he believes that the sunspot cycle correlates strongly with equity markets via the predictable effects of magnetic field disturbances on investors.
• In “Sunspots Predict ‘Major Crisis’ After 2013: Chartist”, he states: “If there is a high intensity of sunspots, markets rise, if their intensity lowers, markets go down because sunspots affect people’s mood.”

Is there a reliable relationship between sunspot activity and stock market returns? Using monthly averages of daily sunspot counts and monthly levels of Shiller’s S&P Composite Index (also monthly averages of daily levels) during January 1871 (limited by the Shiller data) through October 2018, we find that: Keep Reading

Is there a flip side of cyclic relative weakness to the cyclic relative strength described in “Pervasive 12-Month (and 5-Day) Relative Strength Cycles?”? In their October 2018 paper entitled “Seasonal Reversals in Expected Stock Returns”, Matti Keloharju,Juhani Linnainmaa and Peter Nyberg test whether cyclic weakness (seasonal reversal) balances the cyclic strength (seasonality) effect. For example, if a stock is seasonally strong in March, it may be seasonally weak across other months. They test this hypothesis using actual monthly U.S. stock returns and simulated returns calibrated to actual returns. Specifically, they compute correlations between average historical returns for a stock during one month and the sum of its historical average returns during other months. In robustness tests, they repeat this test for 10-year subperiods and for daily U.S. stock returns, monthly non-U.S. stock returns, monthly country stock indexes, monthly country government bond indexes and monthly commodity returns. Finally, they construct the following three factors for U.S. stocks by first each month sorting stocks into two size groups (small and big market capitalizations) and then:

1. Seasonality factor – Sorting each size group into three average same-calendar-month past return portfolios. The factor return is the difference in value-weighted returns between the two highest-average portfolios and the two lowest-average portfolios.
2. Seasonal reversal factor – Sorting each size group into three average other-calendar-month past return portfolios within each size group. The factor return is the difference in value-weighted returns between the two lowest-average and the two highest-average portfolios.
3. Annual-minus-non-annual factor – Sorting each size group into three portfolios based on the difference between the average same-calendar-month and other-calendar-month returns. The factor return is the difference in value-weighted returns between the two largest-difference and the two smallest-difference portfolios.

Using U.S. monthly and daily stock returns since 1963 and monthly returns for country stocks and stock market indexes, country government bond indexes and commodities since the end of 1974, all through 2016, they find that:

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Is the U.S. equity turn-of-the-month (TOTM) effect exploitable as a diversifier of other assets? In their October 2018 paper entitled “A Seasonality Factor in Asset Allocation”, Frank McGroarty, Emmanouil Platanakis, Athanasios Sakkas and Andrew Urquhart test U.S. asset allocation strategies that include a TOTM portfolio as an asset. The TOTM portfolio buys each stock at the open on the last trading day of each month and sells at the close on the third trading day of the following month, earning zero return the rest of the time. They consider four asset universes with and without the TOTM portfolio:

1. A conventional stocks-bonds mix.
2. The equity market portfolio.
3. The equity market portfolio, a small size portfolio and a value portfolio.
4. The equity market portfolio, a small size portfolio, a value portfolio and a momentum winners portfolio.

They consider six sophisticated asset allocation methods:

1. Mean-variance optimization.
2. Optimization with higher moments and Constant Relative Risk Aversion.
3. Bayes-Stein shrinkage of estimated returns.
4. Bayesian diffuse-prior.
5. Black-Litterman.
6. A combination of allocation methods.

They consider three risk aversion settings and either a 60-month or a 120-month lookback interval for input parameter measurement. To assess exploitability, they set trading frictions at 0.50% of traded value for equities and 0.17% for bonds. Using monthly data as specified above during July 1961 through December 2015, they find that:

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Does the Thanksgiving holiday, a time of families celebrating plenty, give U.S. stock investors a sense of optimism that translates into stock returns? To investigate, we analyze the historical behavior of the S&P 500 Index 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 1950-2017 (68 events), we find that: Keep Reading