Investors may be familiar with old market sayingssuch as "sell in May and go away, come back on St Leger Day" (in mid September). But should you follow their advice?
There is certainly some evidence that returns are higher in certain months than others. For example, between 1950 and 2015 the S&P 500 returned 7.8% a year from November to April, compared with just 0.3% between May and October, according to Tom Stevenson of fund manager Fidelity. In the UK market, returns in winter months have consistently outperformed those in summer months, according to Ben Jacobsen and Cherry Zhang of Massey University in New Zealand.
And not only are some months better than others, but there is even evidence that some days of the week are better for investors than others. Between 1953 and 1970 the S&P 500 produced negative returns on Mondays, ending the day up less than 40% of the time, but strongly positive returns on Friday, rising nearly two-thirds of the time, according to a study by Frank Cross in 1973.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Such studies may be the result of "data mining" in other words, if you look at enough data hard enough, you will eventually find the picture you're looking for. Similar trends do at least appear to apply, however, to stockmarkets in Denmark, France, Germany, Hong Kong, Italy, Japan, Norway and Sweden too, according to Peter Hansen of Brown University. Interestingly, southern hemisphere countries do better during their winter (which is our summer), suggesting that this may be relatedto sunlight and the length of the day, according to a 2002 paper by Mark Kamstra, Lisa Kramer and Maurice Levi.
Of course, spotting a relationship and being able to take advantage of it are two different things. Hansen found that the impact of seasonal effects has declined over time, suggesting that awareness of the anomaly has led investors to adjust their behaviour.
Transaction costs also need to be taken into account. Indeed, having to pay the bid/ask spread (the difference between the buying and selling price) eliminated most excess returns from this strategy in the UK for the period between 1986 and 1997, according to research by Andros Gregoriou, Alexandros Kontonikas and Nick Tsitsianis of Brunel University. This implies that investors would be better off sticking to a "buy-and-hold" strategy than buying and selling with the seasons.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
IHT receipts approach record year – will the tax be reformed?
News The Treasury is set to take £7.6 billion from inheritance tax payments this financial year amid rumours of reform in the Spring Budget
By Marc Shoffman Published
Stocks and shares ISAs beat cash ISAs despite rising interest rates
Exclusive analysis for MoneyWeek shows that the stock market beat cash ISAs last year - and when inflation is factored in, cash savers actually made a loss. We run through the figures.
By Ruth Emery Published