This is because April has been the best month for returns. Since 1966 the All-Share index has given an average total return in the month of 2.9 per cent. That compares to an average for all months of 1.1 per cent. If variations in returns were due to chance, there would be only a 0.6 per cent probability of us seeing such a big difference between April and the other months.
In particular, losses are rare in April. In the past 50 years, there have been only nine losses in April. That's 18 per cent, which is less than half the frequency of losses in other months; there have been 212 losses in these 552 months, a frequency of 38.4 per cent. And April has seen only two losses of 5 per cent or more. Such losses are three times as common in the other eleven months of the year.
My favourite reason why April has usually been such a good month was provided by Ian Garrett of Manchester Business School and colleagues. They've shown that stock markets around the world are driven by a form of seasonal affective disorder. As the hours of daylight increase in the spring, we become more optimistic, and this drives up share prices: the opposite happens in the autumn, which is why September is traditionally the worst month for UK equities.
Three things corroborate this theory.
One comes from biology. As researchers at the University of Leicester say, "high levels of testosterone have been shown to be associated with greater, even excessive, amounts of risky behaviour". And researchers at the Medical University of Graz have shown than sunlight raises testosterone levels. This gives us a biological mechanism whereby the spring increases appetite for risk.
The second comes from culture. Spring has long been associated with optimism and risk-taking. Geoffrey Chaucer wrote that in April, "longen folk to goon on pilgrimages": in his day, these were perilous adventures. May Day is an ancient celebration of hope and fertility. And the most bet-upon horse races - the Grand National, Cheltenham festival and Derby - come in the spring.
The third piece of evidence comes from the gilt market. If appetite for risk increases in the spring, we'd expect April to be a bad month for gilts because investors then dump safe assets to buy riskier ones. And this is the case. Since 1986, the average total return on gilts has been 0.27 per cent, less than half the average for all months, of 0.69 per cent. And 13 of the last 30 Aprils have seen loses on gilts, which means the frequency of losses in April is 10 percentage points higher than for the average month. These differences aren't statistically significant in the classical sense, but they are consistent with the other evidence.
The point of all this is not to recommend that you shift into equities now. Instead, it's to show that investors' valuations of assets are driven in part by emotions. As Malcolm Baker of Harvard Business School and Jeffrey Wurgler of New York University have said, "waves of sentiment have clearly discernible, important, and regular effects on individual firms and on the stock market as a whole".
This, of course, explains why seasonal variations in share prices aren't taken as seriously as they should be. The men who are lavishly paid to manage our money want you to believe that their judgments are sober and rational. The historic evidence, however, suggests that this isn't wholly the case.
