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Closing the Question on the Continuation of Turn-of-the-Month Effects: Evidence from the S&P 500 Index Futures Contract

FRB Atlanta Working Paper 2000-11

28 Pages Posted: 16 Nov 2000  

Edwin D. Maberly

Monash University

Daniel F. Waggoner

Federal Reserve Bank of Atlanta

Date Written: August 2000

Abstract

Prior research documents unusually high returns on the last trading day of the month and over the next three consecutive trading days. This phenomenon is known as the turn-of-the-month (TOTM) effect. According to Siegel (1998), why these anomalies occur is not well understood, and whether they will continue to be significant in the future is an open question. In this paper, we examine the S&P 500 futures contract for evidence that turn-of-the-month effects have continued. Transaction costs are low for index futures, and the absence of short-sale restrictions makes index futures an attractive venue for testing the continuation of market anomalies because of the low cost of arbitrage. We find that TOTM effects for S&P 500 futures disappear after 1990, and this result carries over to the S&P 500 spot market. We conjecture that a change in the preference of individual investors over time from making direct to making indirect stock purchases through mutual funds is related to the disappearance of the TOTM effect for more recent return data. In this paper, we argue that turn-of-the-month return patterns for both spot and futures prices are dynamic and related to market microstructure and therefore subject to change without notice. Financial economists should be careful when making out-of-sample inferences from observed in-sample return regularities.

Keywords: Disappearing turn-of-the-month effect, S&P 500 futures, market efficiency

JEL Classification: G14

Suggested Citation

Maberly, Edwin D. and Waggoner, Daniel F., Closing the Question on the Continuation of Turn-of-the-Month Effects: Evidence from the S&P 500 Index Futures Contract (August 2000). FRB Atlanta Working Paper 2000-11. Available at SSRN: https://ssrn.com/abstract=244085 or http://dx.doi.org/10.2139/ssrn.244085

Edwin D. Maberly (Contact Author)

Monash University ( email )

Clayton Campus
Wellington Road
Clayton, VIC 3800
Australia
61399055178 (Phone)

Daniel F. Waggoner

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8278 (Phone)
404-521-8810 (Fax)

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