Toward Solving of the Turn-of-the-Month Effect Puzzle
27 Pages Posted: 7 Dec 2015 Last revised: 8 Dec 2015
Date Written: December 5, 2015
The turn-of-the-month (TOM) anomaly is widely discussed in the literature of the last three decades covering US and other equity markets. In this study we identify new characteristics and sources of this anomaly. We use data of US indices spanning more than 80 years. Our findings relate to existing explanations of the anomaly in the literature, but shed new light on its sources. Our findings pinpoint the specific months during the year in which the anomaly is significant. We show that a significant TOM anomaly in a few months suffices to generate a significant pattern for decades. In addition, we identify the relationship between the TOM effect and other market anomalies as well as the correlation between the anomaly and capital market cycles. Finally, we conclude that the effect exists in the core return data, under regular volatility, and cannot be dismissed as stemming from outliers.
Keywords: turn-of-the-month, anomaly, market efficiency
JEL Classification: G14
Suggested Citation: Suggested Citation