Friday screencast: selling seasonal effects

• abnormalreturns
• October 29th, 2010

A recently published research paper takes a very long term look at a variety of seasonal effects.  Although the notion of seasonal effects is thrown around a great deal the amount of data to definitively prove any of them is simply just not there.   Indeed one of the results of the study is that there are very few effects that consistently show up over time.  However one effect does seemingly work often enough to take note of it:  the Halloween effect or Sell in May effect.  The bottom line being that stocks outperform from November through April and underperform the balance of the year.  One explanation for this effect is seasonal affective disorder or SAD.  The link being that if people are more depressed during times of lower amounts of light the return to risky assets should be higher.   The challenge in all of this research is trying to tease out the various, often overlapping, anomalies that present themselves.  Investors should focus first on their underlying portfolio management process and view these effects as headwinds or tailwinds for the market. In today’s screencast we ask wonder how much investors should rely on things like the Halloween effect.

Items mentioned in the above screencast:

Are seasonality effects real?  A three century perspective by Zhang and Jacobsen.  (SSRN)

The Halloween indicator kicks in.  (Marketwatch)

How well do seasonal effects work in perspective?  (CXO Advisory Group)

Winter Blues:  A SAD Stock Market Cycle by Kamstra, Kramer and Levi.  (FRB Atlanta)

Does Treasuries demonstrate the mirror image of the SAD effect?  (CXO Advisory Group)

The Presidential election cycle.  (Crossing Wall Street)

also

Chart of the Halloween indicator.  (Pragmatic Capitalism)

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