Why is Halloween the best time to invest in the stock market?

(BFM Bourse) – Lovers of thrills and other thrills dare to take action on the eve of All Saints’ Day. Corresponding to the famous adage “sell in May”, the “Halloween Indicator” implies that the period from November to April offers the greatest upside potential in the financial markets.

Candies and other sweet treats, a disguise and a good horror movie, here are the classic paraphernalia for a good Halloween night. For investors, the kit comes with a well-chosen stock portfolio. Buying shares on All Saints’ Eve to sell them six months later generates an abnormally high performance, while the period from May to October results most of the time in a performance if not negative, at least significantly lower than the return on assets without risk.

The stock markets would not be the only ones to be haunted by the spirit of Halloween bitcoin has also progressed on every All Saints’ Eve for the past three years.

A thorn in the side of the market efficiency hypothesis

The question may seem trivial, yet it contradicts the heart of modern financial market theory: the efficiency hypothesis which would like no martingale to beat the indices over time, that is to say to record performance significantly above the long-term average. However, many serious studies show that a seasonal effect is indeed at work on the markets. What is more – to the great annoyance of the researchers – it is not possible to explain why it is better to abstain from intervening on the stock market from May, and to reinvest from the eve of November 1st.

A visible effect almost everywhere, almost all the time

Two academics, specializing in seasonality issues, tested the “Halloween/Sell in May” effect on the largest sample ever collected, and their conclusion is clear: investing on Halloween and taking profits in May brings in 4% more than a strategy of holding its securities indefinitely. Professors Zhang Yi from Nottingham University Business School (China) and Ben Jacobsen from TIAS Business School (Netherlands), worked on nothing less than all the market data available, a first in the world.

Their sample begins in 1693 with the London Stock Exchange and includes up to the most recent of the indices, that of the Rwandan market inaugurated in 2013, i.e. 114 markets in total and more than 63,000 months of stock market performance to dissect… And the result is surprising in its scope since they have identified only one market – the Mauritius Stock Exchange – presenting a superior return over time during the summer period. So, over any rolling five-year period, an investor has an 80% chance of doing better than the market average by following a Halloween buy strategy, and a 90% chance of doing better by sticking to it over ten. year.

The effect of the summer holidays should weigh on volumes

The reason for this outperformance of the winter months around the world is therefore not entirely clear, even if the historical prevalence of the British market suggests a credible lead. It is moreover in the reference daily newspaper of the City that the oldest mention of the saying “Sell in May and go away” was noted – in a 1935 edition of the FinancialTimes, the article already presenting it as “an old adage”. The most likely hypothesis would be that the wealthy classes left London for the countryside on sunny days, leaving their wallets behind (or at least only intervening occasionally during this period). The study by Zhang and Jacobsen assumes that this effect corresponding to the taking of summer holidays is still at work today. Especially since the seasonality of the Halloween Indicator is more marked in Europe and the United States, where the habit of taking vacations in the summer is more widespread than in the rest of the world.

After October, it’s time to get back to the markets

Remains an enigma for researchers: the Halloween effect has not been systematically taken advantage of by arbitrageurs until it disappears. On the contrary, Zhang and Jacobsen observe that it tends to be accentuated over the most recent decades. The spirit of Halloween has therefore not finished haunting the markets, for the greatest benefit of investors…

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