Since 1966 the All-Share index has returned an average of 2.9 per cent in the month. That beats December and January as the best month for the market. And it compares with an average return of just 1 per cent in the other 11 months of the year. Historic returns and volatility imply that there's a one-in-three chance of the index returning more than 5 per cent in April. Only January offers a better chance of such a big rise.
The seasonality of stock markets is one of the most robust facts in finance. Economists at Massey University in New Zealand have found that throughout the entire history of stock markets around the world, shares do better on average between November and April than they do between May and October.
There's a good reason for this, pointed out by Lisa Kramer at the University of Toronto. We are prone to a form of seasonal affective disorder. As the nights draw in in the autumn we become depressed and so reluctant to hold shares; on average, the market falls in September. However, in the spring the lighter nights cheer us up and embolden us to take risk. And this pushes up prices.
This same theory explains why seasonality persists. The only way you can exploit the tendency for shares to rise in April is to buy before then when the weather's cold and the nights are long and so we are down in the dumps. But that's when you don't feel like buying.
"In the spring a young man's fancy lightly turns to thoughts of love," wrote Tennyson. When April comes, "than longen folk to goon on pilgrimages," wrote Chaucer. They knew that our sentiments vary with the seasons. This matters for shares.
Of course, none of this guarantees a good April; the market has fallen in six of the past 48 Aprils. But it's probably a better reason for optimism than most, being well based in history and biology rather than mere futurology.
Which poses the question: why do financial professionals talk so much about future macroeconomic conditions - about which we know little - and not so much about the hard facts of seasonality? Sure, "sell in May" is an old saying, but it is regarded as folk wisdom and an old wives' tale rather than as what it really is, which is a scientifically grounded investment principle.
One reason for their silence lies in what the French call deformation professionelle - the fact that any professional training distorts one's perceptions of the world. Professional fund managers and economists who are trained to study company reports and economics naturally overweight the importance of such things and so underweight other things. Insofar as they think of sentiment, they tend to see it as noise rather than as something systematic and perhaps partly predictable.
This distortion is accompanied by another one. In politics the idea of the Overton window is well known; it is the (narrow) range of ideas that are considered acceptable. But there's also an Overton window in finance. Some silly ideas - such as the notion that the economy is forecastable - are within the window - while other sensible ones, such as the seasonality of equities, are outside it.
There's a reason for this. It lies not in scientific evidence but in an urge to preserve the self-image of the investment industry. This image is one of sober men in suits making sound judgments about serious matters. To admit that shares are moved by the seasons would undermine this self-image and suggest that professional investors are skittish sentimental flibbertigibbets. Nobody wants to say the emperor has no clothes.
