A Tax-Free Exploitation of the Turn-of-The-Month Effect: C.R.E.F.

Posted: 3 Sep 1998

See all articles by Robert A. Kunkel

Robert A. Kunkel

University of Wisconsin - Oshkosh - Department of Finance

William S. Compton

Western Illinois University - Department of Marketing and Finance

Abstract

By applying knowledge of the "turn-of-the-month" effect investors will improve the risk-adjusted performance of their retirement accounts by using a simple and easily implemented "switching" strategy. Our exploitation of the turn-of-the-month anomaly achieves a 17.7 percent average annual rate of return by switching between a money market account and a broad market indexed stock account. This is compared to a 15.6 percent average annual rate achieved by simply buying and holding the stock account, or a 5.8 percent average rate on the money market account. Additionally, volatility is cut in half and there are no tax consequences or transaction fees when the switching strategy is used within a retirement account. Our results suggests that this strategy might be successfully implemented, under current tax laws, in qualified retirement plans and in variable annuities.

JEL Classification: G12, G14

Suggested Citation

Kunkel, Robert A. and Compton, William S., A Tax-Free Exploitation of the Turn-of-The-Month Effect: C.R.E.F.. Available at SSRN: https://ssrn.com/abstract=121070

Robert A. Kunkel

University of Wisconsin - Oshkosh - Department of Finance ( email )

College of Business Administration
Oshkosh, WI 54901
United States
920-424-7191 (Phone)

William S. Compton (Contact Author)

Western Illinois University - Department of Marketing and Finance ( email )

Macomb, IL 61455
United States
309-298-1090 (Phone)
309-298-2198 (Fax)

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