Summer Vacation and Cross-Sectional Stock Returns

2015 Paris Financial Management Conference

Posted: 7 Feb 2020

See all articles by Ya LI

Ya LI

The Open University of Hong Kong

FY Eric Lam

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Gordon Y. N. Tang

Hong Kong Baptist University

Date Written: 2015

Abstract

The risk premium based on the cross sectional stock returns measured by a composite expected return signal displays closely similar winter vs. summer seasonal pattern as the market return does. We observe similar seasonal pattern for the signal component market value of equity, the book-to-market equity ratio, and total asset growth while less so for gross profitability. Our results are mostly consistent with the summer vacation argument of Bouman and Jacobsen (2002) and Jacobsen and Marquering (2008, 2009), which suggests that market wide risk aversion rises in summer and drops in winter due to seasonal variation in market participation. From the seasonality perspective, our findings support recent empirical asset pricing model of Fama and French (2014, 2015) that makes use of multiple factors based on the above signal components together with the market return simultaneously. We also provide further empirical seasonal regularity that an underlying pricing story to be developed would consider reconciling.

Keywords: Book-to-market equity ratio; Cross sectional stock returns; Gross profitability; Halloween effect, Market value of equity; Sell in May and go away, Summer vacation, Total asset growth

JEL Classification: G14, G31, G32, M41, M42

Suggested Citation

LI, Ya and Lam, Full Yet Eric Campbell and Tang, Gordon Y. N., Summer Vacation and Cross-Sectional Stock Returns (2015). 2015 Paris Financial Management Conference. Available at SSRN: https://ssrn.com/abstract=3519740

Ya LI (Contact Author)

The Open University of Hong Kong ( email )

30 Good Shepherd Street, Ho Man Tin
Hong Kong

Full Yet Eric Campbell Lam

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central
Hong Kong
China

Gordon Y. N. Tang

Hong Kong Baptist University ( email )

Dept. of Finance and Decision Sciences
Kowloon
Hong Kong
852-3411-7563 (Phone)
852-3411-5585 (Fax)

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