When Low Beats High: Riding the Sales Seasonality Premium
59 Pages Posted: 21 May 2018 Last revised: 27 May 2018
Date Written: May 23, 2018
We demonstrate that sorting stocks on sales seasonality predicts future abnormal returns. A long-short strategy of buying low-sales-season stocks and shorting high-sales-season stocks generates an annual alpha of 8.4%. Further, this strategy has become stronger over time, generating an annual alpha of approximately 15% over the last decade. This seasonal effect predicts future stock returns in cross-sectional regressions, and is independent of previously documented seasonal anomalies. Moreover, the alphas from this trading strategy cannot be explained by differences in stock market liquidity, systematic risk, asymmetric information, or financing decisions. Further tests indicate that this phenomenon may be driven partially by seasonal fluctuations in the level of investor attention.
Keywords: Sales Seasonality, Stock Returns, Investor Attention
JEL Classification: G12, G14
Suggested Citation: Suggested Citation