Common Factors in Stock Market Seasonalities
Juhani T. Linnainmaa
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Peter M. Nyberg
October 25, 2013
Fama-Miller Working Paper
Chicago Booth Research Paper No. 13-15
A strategy that selects stocks based on their historical same-calendar month returns earns an average return of 13% per year. We develop and test two models to evaluate the source of these profits. In the first model the seasonalities arise from seasonal variation in the risk premia of common factors; in the second they are stock-specific. Our empirical results are consistent with the first model: common factors account for at least three-quarters of the seasonalities in individual stock returns, exposing seasonal investment strategies to systematic risk. The factors are largely the same as those driving the differences in average returns.
Number of Pages in PDF File: 49working papers series
Date posted: February 25, 2013 ; Last revised: October 26, 2013
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