Slideshows | June 25, 2013

Does midsummer madness affect share markets?

Can public holidays, the month in the year or the start of daylight saving have an effect on share market prices?

As strange as it may sound, some argue they can – and that these “calendar effects” present opportunities that investors can exploit to make money.

Too good to be true?
It is worth noting, however, that the existence of calendar effects is highly contested. And even if they have occurred in the past, markets can adapt as people try to cash in. If a lot of investors buy shares if they expect prices to be down at a certain point of time, that demand could “correct” the price anomaly and make the calendar effect less pronounced or see it disappear altogether.

 

1

New year, new opportunity?

Some say January is associated with above average returns in share markets because of particular ebbs and flows in trading patterns as years end and start. Named the January effect, it has been the topic of a lot of analysis and research over several decades – including some that disputes it.

2

When the clocks go back…

In 1999, researchers concluded that the clocks changing for daylight saving coincided with falls in share markets. They wrote the average Friday to Monday fall on daylight saving weekends was about 200-to-500-percent larger than the fall typically recorded on other weekends in the year. But later studies have found otherwise.

3

Midsummer madness?

Midsummer is typically a time of long days, good weather and celebration – but watch out: research suggests that shares tend to be expensive at this time. A study used three share valuation measures and for each “the average level is the highest in midsummer and the lowest in mid-December”.

4

Trick or treat?

The flip side of midsummer is spooky Halloween. Economist and writer Chris Dillow blogs about “seasonal recessions” and cites research on trends in share prices in Spring and Autumn. One theory is that shorter days and poor weather around Halloween and winter make people feel sad and shares fall as a result, which might make it an attractive time to buy.

5

Thank you Mr President?

Yale Hirsch, creator of well-known annual handbook Stock Trader's Almanac, has researched many calendar effects. One theory relates to the election cycle of the United States President – with US shares apparently tending to decline in the year or two immediately after elections, followed by an improvement (meaning markets would be stronger when politicians want votes). But Investopedia writes it was reliable in the early to mid-1900s but “data from the later twentieth century has disproved it”.

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eZonomics team
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