Calendar Effects

Does the Memorial Day holiday signal any unusual U.S. stock market return effects? By its definition, this holiday brings with it any effects from three-day weekends and sometimes the turn of the month. Prior to 1971, the U.S. celebrated Memorial Day on May 30. Effective in 1971, Memorial Day became the last Monday in May. To investigate the possibility of short-term effects on stock market returns around Memorial 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 2017 (68 observations), we find that: Keep Reading

Do exchange-traded funds (ETF) exhibit unique calendar-based anomalies? In their April 2018 paper entitled “Evidence of Idiosyncratic Seasonality in ETFs Performance”, flagged by a subscriber, Carlos Francisco Alves and Duarte André de Castro Reis investigate calendar-based patterns of risk-adjusted returns and tracking errors for U.S. equity ETFs and compare findings to those of underlying indexes. They aggregate returns of their ETF sample via equal weighting. They consider returns calculated based on either market price or Net Asset Value (NAV). For risk adjustment, they consider alpha from either 1-factor (market) or 4-factor (market, size, book-to-market, momentum) risk models of stock returns. They look for raw return or alpha patterns in calendar months, calendar quarters, months of calendar quarters, calendar half-years, days before holidays (New Year’s Day, Martin Luther King Jr. Day, George Washington’s Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas), days of the week and turn-of-the-month (last trading day of a month through three trading days of the next month). Using daily prices and NAVs for 148 index-tracking U.S. equity ETFs and associated indexes, and contemporaneous equity factor model returns, during December 2004 through December 2015 (11 years), they find that:

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A subscriber asked whether the Simple Asset Class ETF Momentum Strategy (SACEMS) exhibits monthly calendar effects. In investigating, we consider also the Simple Asset Class ETF Value Strategy (SACEVS)? We focus on: (1) the “Best Value” version of SACEVS, which each month picks one of three exchange-traded funds (ETF) corresponding to the most undervalued of U.S. term, credit and equity risk premiums (or cash if none of the three premiums are undervalued); and, (2) the “EW Top 3” version of SACEMS, which each month equally weights the top three of nine ETFs/cash with the highest total returns over a specified lookback interval. Using monthly total returns for SACEVS Best Value asset selections since August 2002 and for SACEMS EW Top 3 asset selections since August 2006, all through March 2018, we find that:

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Does the seasonal shift marked by the Easter holiday, with the U.S. stock market closed on the preceding Good Friday, tend to produce anomalous returns? To investigate, we analyze the historical behavior of the S&P 500 Index before and after the holiday. Using daily closing levels of the S&P 500 index for 1950-2017 (68 events), we find that: Keep Reading

Does long term data support the belief that “as goes January, so goes the rest of the year” (January is the barometer) for the the U.S. stock market? Robert Shiller’s long run sample, which calculates monthly levels of the S&P Composite Stock Index since 1871 as average daily closes during calendar months, offers data for testing. Because average monthly levels differ from monthly closes, we run all tests also on the S&P 500 Index. Using monthly levels of the S&P Composite Stock Index for 1871-2017 (147 years) and monthly and daily closes of the S&P 500 Index for 1950-2017 (68 years), we find that: Keep Reading

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 data for 1967 through 2017 (51 events), 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 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 February 2006 for DBC) through December 2017 (143-299 months), 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 trading data back to 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 December 2017 (229 months), we find that: Keep Reading

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 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 during January 1950 through December 2017 (816 TOTMs) and for the Russell 2000 Index during September 1987 through December 2017 (364 TOTMs), 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 roughly 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 2017 (68 years), we find that: Keep Reading