Give Me Stock Index ETFs Instead of Candy for Halloween
In my search to find out whether "sell in May and go away" seasonality exists in the U.S. stock market in a statistically significant way, I've been doing a little reading on the Internet.
Although I had shown this seasonal effect with an Excel analysis, I was still perplexed as to why this seasonal hasn't disappeared over the years. If everyone knows about seasonality, why doesn't it go away or start shifting backwards?
Remember that people (like myself) want to come up with an explanation for something that doesn't necessarily have a simple solution or cause. This often arises from the human tendency to equate correlation and causation. For example, if I buy some Google stock on Monday and the stock goes through the roof on Tuesday, I might conclude that the new type of coffee I drank on Monday caused my success in the market. The point is that people try to find simple causes for phenomenon that are most likely a result of a combination of factors. Having been warned, I have collected for you a number of links I found that provide some different explanations for this seasonal effect. Some of them are quite convincing:
(Please note that I do not advocate any of the following services or websites. I have not tried their services, nor do I have any commercial relationship with them):
It must be all those trick-or-treaters scaring people to give away their money and candy on Halloween. Then those damn kids sell the candy to younger kids and invest all the cash in the stock market! OK, let's be reasonable. Mutual funds fiscal year-end happens to coincide with Halloween. If you get quarterly or annual prospecti or reports from a mutual fund company like Fidelity, look at the year-end date for their financial statements. It's October 31st in most cases.
Paul
Although I had shown this seasonal effect with an Excel analysis, I was still perplexed as to why this seasonal hasn't disappeared over the years. If everyone knows about seasonality, why doesn't it go away or start shifting backwards?
Remember that people (like myself) want to come up with an explanation for something that doesn't necessarily have a simple solution or cause. This often arises from the human tendency to equate correlation and causation. For example, if I buy some Google stock on Monday and the stock goes through the roof on Tuesday, I might conclude that the new type of coffee I drank on Monday caused my success in the market. The point is that people try to find simple causes for phenomenon that are most likely a result of a combination of factors. Having been warned, I have collected for you a number of links I found that provide some different explanations for this seasonal effect. Some of them are quite convincing:
(Please note that I do not advocate any of the following services or websites. I have not tried their services, nor do I have any commercial relationship with them):
- Sy Harding's FAQs on his variation of this seasonal strategy
- CXO Advisory's Review of Halloween Effect (rehashing an academic paper)
- CXO Advisory's Comprehensive Conclusion on Calendar Effects
- Ben Jacobsen and Nuttawat Visaltanachoti's "The Halloween Effect in U.S. Sectors"
It must be all those trick-or-treaters scaring people to give away their money and candy on Halloween. Then those damn kids sell the candy to younger kids and invest all the cash in the stock market! OK, let's be reasonable. Mutual funds fiscal year-end happens to coincide with Halloween. If you get quarterly or annual prospecti or reports from a mutual fund company like Fidelity, look at the year-end date for their financial statements. It's October 31st in most cases.
Paul
posted by Traders Edge Systems at 2:17 AM
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