Regular readers might have spotted that I often refer to the same few pieces of research. I don’t apologise for this: there are only a limited number of things that are both true and useful. As many of you will have time on your hands over Christmas, and might want an escape from the family, you might want to follow up on this reading, so I thought I’d gather much of it together – because it tells an important story.
Let’s start with Ben Jacobsen’s and Cherry Zhang’s paper, 'The Halloween Indicator.' They show that, in almost all national stock markets since they began trading, share prices have done significantly better from Halloween to May Day than from May Day to Halloween. 'Sell on May Day; buy on Halloween' has worked. Stock market seasonality is a not a cranky view. It has more abundant empirical evidence behind it than most investment strategies.
There’s an important reason for this. Share prices are driven in part by sentiment. As Mark Kamstra and colleagues have shown, prices tend to fall in the autumn because we become more anxious and depressed as the nights draw in, but they rise in the spring as lighter evenings cheer us up.