Seasonality in the Cross-Section of Expected Stock Returns

37 Pages Posted: 20 Mar 2005  

Steven L. Heston

University of Maryland - Department of Finance

Ronnie Sadka

Boston College - Carroll School of Management

Date Written: July 26, 2004

Abstract

This paper introduces seasonality into a model of expected stock returns. We confirm previous findings that there is no evidence for cross-sectional variation in expected stock returns when we restrict the means to be constant throughout the year. Yet, we show there is substantial variation when considering each month of the year separately. Applying a seasonal structure we estimate an annualized standard deviation of 13.8%. There is strong evidence stocks have distinct expected returns in January, February, ... December. The estimated seasonal variation in expected returns is positive in every calendar month and especially high during October, December, and January. This structure is independent of industry, size, and earnings announcements. These results support the inclusion of seasonal structure into asset-pricing models.

Suggested Citation

Heston, Steven L. and Sadka, Ronnie, Seasonality in the Cross-Section of Expected Stock Returns (July 26, 2004). AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=687022 or http://dx.doi.org/10.2139/ssrn.687022

Steven L. Heston (Contact Author)

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

Ronnie Sadka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Paper statistics

Downloads
1,749
Rank
6,916
Abstract Views
6,632