Calendar Effects

Are there interactions between stock return momentum and days of the week? In their March 2024 paper entitled “Same-Weekday Momentum”, Zhi Da and Xiao Zhang investigate how momentum interacts with days of the week. They first perform regression tests to evaluate abilities of same-day and other-day past returns to predict day-of-the-week momentum. They then evaluate economic significance of findings by comparing three trading strategies:

1. Standard Momentum – each month, reform a value-weighted hedge portfolio that is long (short) stocks that are in the top (bottom) tenth, or decile, of stocks with the highest (lowest) average monthly returns from 12 months ago to one month ago.
2. Same-Weekday Momentum – each weekday during a month, reform a value-weighted hedge portfolio that is long (short) the decile of stocks with the highest (lowest) average daily returns on the same day of the week from 12 months ago to one month ago.
3. Other-Weekday Momentum – each weekday during a month, reform a value-weighted hedge portfolio that is long (short) the decile of stocks with highest (lowest) average daily returns on other weekdays from 12 months ago to one month ago.

Using daily data for publicly listed U.S. stocks, excluding those priced less than $5 and those in the bottom tenth of NYSE market capitalizations, during 1963 through 2021 and daily equity fund/institutional trading data as available, they find that: Keep Reading

The middle of the year might be a time for funds to dress their windows and investors to review and revise portfolios. The 4th of July celebration might engender optimism among U.S. investors. Are there any reliable patterns in daily U.S. stock market returns around mid-year and the 4th of July? To check, we analyze historical behavior of the S&P 500 Index from five trading days before through trading days after both the end of June and the 4th of July. Using daily closing levels of the index for 1950-2023, we find that: Keep Reading

Does the U.S. stock market have a predictable pattern of returns around ends of calendar quarters? Do funds deploy cash to bid stocks up at quarter ends to boost portfolio values in quarterly reports (with subsequent reversals)? Or, do they sell stocks to raise cash for fund redemptions? Is any end-of-quarter effect distinct from the Turn-of-the-Month (TOTM) effect? To investigate, we calculate average daily stock market (S&P 500 Index) returns before and after ends of calendar quarters and compare those returns to TOTM returns. Using daily closes of the S&P 500 Index during January 1928 through May 2024, we find that: Keep Reading

A subscriber asked: “Some pundits have noted that U.S. stocks have greatly outperformed foreign stocks in recent years. What does the performance of U.S. stocks vs. foreign stocks over the last N years say about future performance?” To investigate, we use the S&P 500 Index (SP500) as a proxy for the U.S. stock market and the ACWI ex USA Index as a proxy for the rest-of-world (ROW) equity market. We consider three ways to relate U.S. and ROW equity returns:

1. Lead-lag analysis between U.S. and ROW annual returns to see whether there is some cycle in the relationship.
2. Multi-year correlations between U.S. and next-period ROW returns, with periods ranging from one to five years.
3. Sequences of end-of-year high water marks for U.S. and ROW equity markets.

For the first two analyses, we relate the U.S. stock market to itself as a control (to assess whether ROW market behavior is distinct). Using monthly levels of the S&P 500 Index and the ACWI ex USA Index during December 1987 (limited by the latter) through April 2024, we find that: Keep Reading

Does the Memorial Day holiday signal any unusual U.S. stock market return effects? By its definition, this holiday brings with it any effects from three-day weekends and sometimes the turn of the month. Prior to 1971, the U.S. celebrated Memorial Day on May 30. Effective in 1971, Memorial Day became the last Monday in May. To investigate the possibility of short-term effects on stock market returns around Memorial Day, we analyze the historical behavior of the stock market during the three trading days before and the three trading days after the holiday. Using daily closing levels of the S&P 500 Index for 1950 through 2023 (74 observations), we find that: Keep Reading

Referring to “Turn-of-the-Month Effect Persistence and Robustness”, a subscriber asked about applying the Turn-of-the-Month (TOTM) effect to ProShares Ultra S&P500 (SSO). As in the referenced research, we define TOTM as the interval from the close five trading days before to the close four trading days after the last trading day of the month (a total of eight trading days, centered on the monthly close). We compare a strategy of holding SSO only during TOTM to buying and holding SSO. We initially assume 0.1% 1-way SSO-cash switching frictions and look at sensitivity of findings to variation in the assumed level of frictions. Using daily dividend/split-adjusted prices for SSO during late June 2006 through early April 2024, we find that: Keep Reading

Is the stock market overnight move effect exploitable? To investigate, we look at performances of two exchange-traded funds (ETF) designed to exploit the effect:

1. NightShares 500 ETF (NSPY), which “seeks to return the night performance of a portfolio of 500 large cap U.S. companies.” The benchmark is SPDR S&P 500 ETF Trust (SPY).
2. NightShares 2000 ETF (NIWM), which “seeks to return the night performance of a portfolio of 2000 small cap U.S. companies.” The benchmark is iShares Russell 2000 ETF (IWM).

Because available samples are short, we focus on daily return correlation with the benchmark, average daily return, standard deviation of daily returns and daily reward/risk (average daily return divided by standard deviation of daily returns). We also look at compound annual growth rates (CAGR) and maximum drawdowns (MaxDD) based on daily data. Using daily total returns for NSPY, NIWM and benchmarks during June 28, 2022 through July 31, 2023, we find that: Keep Reading

How has the simple Sell in May strategy worked in the modern U.S. equity market, defined as the time since introduction of SPDR S&P 500 ETF Trust (SPY)? To investigate, we:

• Calculate 6-month SPY returns from the ends of April and October.
• Find yields for 6-month U.S. Treasury bills (T-bills) at the end of each April, and the yield for 3-month T-bills at the end of January 1993 for the initial interval.
• Generate returns for a strategy that holds SPY during November through April and T-bills during May through October, with switches at the ends of April and October.

We assume 0.1% frictions when switching between SPY and T-bills. We ignore tax implications of trading. The benchmark is buy-and-hold SPY. Using the specified data from the end of January 1993 through March 2024, we find that: Keep Reading

Is the behavior of the U.S. stock market around exchange holidays consistent enough to generate an aggregate pattern? To investigate, we look at daily S&P 500 Index returns from three trading days before a holiday through three trading days after for the following holidays (adding the Super Bowl) as available since 1950:

New Year’s Day (74 observations, including 2024)
Super Bowl (58 observations, including 2024)
Good Friday (74 observations)
Memorial Day (53 observations)
4th of July (74 observations)
Labor Day (74 observations)
Thanksgiving (74 observations)
Christmas (74 observations)

The total number of observations is 555. Using daily closes of the S&P 500 Index during the specified intervals around holidays, we find that: Keep Reading

Does the seasonal shift marked by the Easter holiday, with the U.S. stock market closed on the preceding Good Friday, produce anomalous returns? To investigate, we analyze the historical behavior of the S&P 500 Index before and after the holiday. Using daily closing levels of the S&P 500 index for 1950-2023 (74 events), we find that: Keep Reading