Seasonality in Stock and Bond ETFs (2001-2014): The Months Are Getting Mixed Up But Santa Delivers on Time

Posted: 21 May 2019

Date Written: August 1, 2015

Abstract

This article examines the current state of seasonality in returns using a set of ten highly liquid exchange-traded funds (ETFs). Our analysis extends beyond the traditional stock market framework to also include bond, real estate, and gold assets, in the same study. Additionally, this use of ETFs is a new approach compared with existing seasonality literature. Four well-known effects are researched – the January effect, the Halloween effect (“Sell in May and Go Away”), the Mark Twain effect, and the Santa Claus rally. The results are mixed. Some seasonality effects seem to have weakened while others have remained intact or even strengthened. This might be the result of improved market efficiency, arbitrage activity, or high frequency trading (HFT). The persistence of some of the effects is somewhat puzzling against the backdrop of the efficient market hypothesis (Fama [1970]) but could be rationalized via differential investor sentiment responses (Waggle and Agrrawal [2015]). The article also provides reference tables that include probabilities and averages for each month and for each effect. The Altman-Wald and Friedman tests are utilized for statistical significance, given the relatively short return histories for ETFs. These could be utilized by a trader as a tactical overlay on top of a longer term strategic allocation. Finally, we introduce the reader to the bond based “Safety in Summer” effect, as an additional calendar effect, to be further researched in the years to come.

The 1980-2000 period was also utilized to study seasonality effects, for the S&P500 and the Russell 2000 indices.

The study utilizes Total returns and not just Price returns, the Returnfinder iApp was utilized at times to cross-check the total returns (including dividends and bond interest, if applicable).

Keywords: seasonality returns, calendar, January, 'sell in May and go away', Halloween, santa rally effects October returns, ETFs

JEL Classification: G1

Suggested Citation

Agrrawal, Pankaj and Skaves, Matthew, Seasonality in Stock and Bond ETFs (2001-2014): The Months Are Getting Mixed Up But Santa Delivers on Time (August 1, 2015). Journal of Investing, Vol. 24, No. 3, 2015, https://doi.org/10.3905/joi.2015.24.3.129, Available at SSRN: https://ssrn.com/abstract=2657928

Pankaj Agrrawal (Contact Author)

University of Maine ( email )

Orono, ME 04469
United States

Matthew Skaves

University of Maine ( email )

Orono, ME 04469
United States

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