A Seasonality Factor in Asset Allocation

40 Pages Posted: 5 Nov 2018 Last revised: 20 Mar 2019

See all articles by Frank McGroarty

Frank McGroarty

University of Southampton - Southampton Business School

Emmanouil Platanakis

University of Bath - School of Management

Athanasios Sakkas

University of Nottingham

Andrew Urquhart

ICMA Centre, Henley Business School

Date Written: March 15, 2019

Abstract

Motivated by the seasonality found in equity returns, we create a Turn-of-the-Month (ToM) allocation strategy in the U.S. equity market and investigate its value in asset allocation. By using a wide variety of portfolio construction techniques in an attempt to address the impact of estimation risk in the input parameters, we show significant out-of-sample benefits from investing in the ToM factor along with a traditional stock-bond portfolio. The out-of-sample benefits remain significant after taking into account transaction costs and by using different rolling estimation windows indicating that a market timing strategy based on the ToM offers substantial benefits to investors when determining the allocation of assets.

Keywords: asset allocation; turn-of-the-month; seasonality; timing; portfolio optimization

JEL Classification: G11, G12, G14, G15

Suggested Citation

McGroarty, Frank and Platanakis, Emmanouil and Sakkas, Athanasios and Urquhart, Andrew, A Seasonality Factor in Asset Allocation (March 15, 2019). Available at SSRN: https://ssrn.com/abstract=3266285 or http://dx.doi.org/10.2139/ssrn.3266285

Frank McGroarty

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

Emmanouil Platanakis (Contact Author)

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Athanasios Sakkas

University of Nottingham ( email )

Nottingham University Business School
Jubilee Campus
Nottingham, NG8 1BB
United Kingdom

Andrew Urquhart

ICMA Centre, Henley Business School ( email )

University of Reading
Whiteknights
Reading, Berkshire RG6 6BA
United Kingdom

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