Turn-of-the-Month: Window Dressing Behavior
19 Pages Posted: 22 Aug 2015 Last revised: 12 Jun 2016
Date Written: October 1, 2015
We study the impact of trading during the end of the month cycle. We find that there is a meaningful negative expected return from owning equities in the last trading hour of the month. The effect is large and potentially exploitable by investors that are not tied to monthly reporting cycles. The return pattern is different from other days in equity markets and has persisted over more than a decade. The effect is generally larger for US small cap indices than large cap indices.
The reasons for the effect may be related to window dressing by fund managers, risk control, lottery-ticket behavior or less likely market manipulation. The effect applies to broad indices making it less likely that it is driven by a few traders but rather by the behavior of a large group of traders responding to the same incentives.
Keywords: Turn-of-the-month, window dressing, market anomalies
Suggested Citation: Suggested Citation