One of our favorite topics is the effect of seasonality on stock prices. A couple of articles came to our attention that are worth a look for any one interested in this topic.
Crossing Wall Street points to a really interesting paper that debunks prior research that attempts to link stock returns to measures of investor mood. Reseachers had thought that variables that affect investor mood, like amount of sunlight and weather, had some systematic effect on stock prices. However once you control for the traditional seasonal effect, i.e. “sell in may and go away” or the “halloween effect”, there is little value to these other mood measures. What this does not do is explain the ubiquity of the seasonality effect.
William Hester at Hussman Funds writes on the role of the presidential cycle and stock prices. Unfortunately for investors the historical record for the second year of presidential terms does not bode well for investors. The only bright spot is that the fourth quarter starts looking up. Hester notes, and it is well worth repeating, that seasonality is simply one tool that investors can utilize. Relying on any single measure would be, at best, short-sighted.