Seasonal Effects and Other Anomalies

34 Pages Posted: 24 Apr 2018

See all articles by Blair Hull

Blair Hull

Hull Investments LLC

Petra Bakosova

Hull Tactical

Alexander Kment

Hull Tactical

Date Written: April 19, 2018

Abstract

We revisit a series of popular anomalies: seasonal, announcement and momentum. We comment on statistical significance and persistence of these effects and propose useful investment strategies to incorporate this information. We investigate the creation of a seasonal anomaly and trend model composed of the Sell in May (SIM), Turn of the Month (TOM), Federal Open Market Committee pre-announcement drift (FOMC) and State Dependent Momentum (SDM). Using the total return S&P 500 dataset starting in 1975, we estimate the parameters of each model on a yearly basis based on an expanding window, and then proceed to form, in a walk forward manner, an optimized combination of the four models using a return to risk optimization procedure. We find that an optimized strategy of the aforementioned four market anomalies produced 9.56% annualized returns with 6.28% volatility and a Sharpe ratio of 0.77. This strategy exceeds that Sharpe ratio of Buy-and-Hold in the same period by almost 100%. Furthermore, the strategy also adds value to the previously published market-timing models of Hull and Qiao (2017) and Hull, Qiao, and Bakosova (2017). A simple strategy which combines all three models more than doubles the Sharpe ratio of Buy-and-Hold between 2003-2017. The combined strategy produces a Sharpe ratio of 1.26, with annualized returns of 18.03% and 13.26% volatility. We publish conclusions from our seasonal trend and anomaly model in our Daily Report.

Keywords: equity premium, seasonal effects, anomalies, forecasting, predictability, market timing, asset returns, tactical asset allocation

Suggested Citation

Hull, Blair and Bakosova, Petra and Kment, Alexander, Seasonal Effects and Other Anomalies (April 19, 2018). Available at SSRN: https://ssrn.com/abstract=3165669 or http://dx.doi.org/10.2139/ssrn.3165669

Blair Hull

Hull Investments LLC ( email )

141 W. Jackson Street #1650
Chicago, IL 60604
United States

Petra Bakosova (Contact Author)

Hull Tactical ( email )

141 W. Jackson Street #1650
Chicago, IL 60604
United States
3123563139 (Phone)

HOME PAGE: http://www.hulltactical.com

Alexander Kment

Hull Tactical ( email )

141 W. Jackson Street #1650
Chicago, IL 60604
United States

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