Seasonality in stock market returns

Most human activities have seasonal cycles. The stock market's seasonal cycle is not reliable every year, but it is powerful over the long term.

Globally, it is said that all the positive return of the stock market is done during the 6-month period from the 1st of November to the 30th of April, and that it's better to be out of the market from the 1st of May to the 31st of October.

Equity Clock » Seasonality

But is this just a Wall Street legend or does it really work? Many research articles have been published on the subject, generally with partial data and unconvincing explanations. Until recently there was no exhaustive study to prove that one of the best quantitative indicators might be the calendar.

Late inBen Jacobsen and Cherry Y. Zhang from Massey University New Zealand wrote two unbelievable articles: Are Monthly Seasonal Real? A Three Century Perspective 74 pages and The Halloween Indicator: Everywhere and all the time 55 pages.

This is the lethal weapon against skepticism. Compiling available data since in countries, they claim that not only the discrepancy between Summer and Winter is as old as stock data, but that it can be observed worldwide and has increased in the last decades. I think that these academic papers are a must read for anyone seriously involved at any level in the stock market.

At the time these lines were written, both of them are available on the Social Science Research Network website SSRN mturk work from home. I will borrow their global results here, in-depth statistics can be found in the original articles.

The following table shows monthly average returns in percentages from different sources.

Like Jacobsen, I call "Winter" the 6 months from November to April and "Summer" the 6 months from May to October. The best months of the year are April and December joined by March in the recent yearsthe worst ones are May and September.

Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns: CFA Digest: Vol 0, No 0

September is the only month to be negative on the four timescales. Please note that January has been one of the best months in the past, and the worst one for at least 14 years. The least we can say is that the January effect didn't work so well seasonality in stock market returns to Jacobsen and Zhang have also noted that the U.

Here is the Dow Jones Industrial Average return by season from seasonality in stock market returns The Total Return and Total Drawdown columns give the return and the drawdown since to the end of the period source of seasonal returns: How to make money fast for everquest Upon Summer Decline by Mateo Blumer on Seeking Alpha; source of total returns nzd usd exchange rate yahoo finance drawdowns: These statistics are from May to May.

It also means that if you compound the returns of summer and winter, you won't obtain the historical return of year N. This is a very long-term vision of the stock market. Knowing that seasonal patterns don't work every single year, can an investor draw applicable ideas on the short term? For example this article was written in mid-February. This is a dangerous month in the middle of the good season. The indexes are close to all-time highs, clearly due for a consolidation after a powerful rally.

Even a bullish investor should be wary of taking new long positions in the next weeks. The risk is not worth the possible missed opportunity for just a couple of statistically dangerous weeks. March will be a better time to make a decision.

Seasonal Patterns In Stock Markets: Years Of Evidence - SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) | Seeking Alpha

In an article to come, I will expose interesting conclusions from Jacobsen's publications about seasonal patterns in specific countries. Follow me if you don't want to miss it. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article.

Seasonal Patterns In Stock Markets: You probably have already heard of its four best-known effects: Macro ViewMarket Outlook. Want to share your opinion on this article?

Stock Return Day of the Month Seasonality, US Markets - QUSMA

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