Equity Returns at the Turn of the Month

50 Pages Posted: 18 Jul 2006

See all articles by Wei Xu

Wei Xu

HSBC School of Business, Peking University; Purdue University

John J. McConnell

Purdue University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2006

Abstract

A turn-of-the-month effect in U.S. equity returns was initially identified by Lakonishok and Smidt (1988) using the DJIA for the period 1897-1986. According to the turn-of-the-month effect, equity returns over the interval beginning the last trading day of the month and ending three days later are significantly higher than over other days. Using CRSP daily returns, we find that the turn-of-the-month effect persists over the recent interval of 1987-2005: in essence, over this 19-year period (and over the 109-year period of 1897-2005) all of the excess market return occurred during the four-day turn-of-the-month interval. Thus, during the other 16 trading days of the month, on average, investors received no reward for bearing market risk. We further find that the turn-of-the-month effect is not confined to small or low-priced stocks; it is not confined to the December-January turn-of-the-month; it is not confined to calendar-quarter-ends; it is not confined to the U.S.; and it is not due to market risk as traditionally measured: the standard deviation of returns at the turn-of-the-month is no higher than during other days. This persistent peculiarity in equity returns poses a challenge to both "rational" and "behavioral" models of asset pricing.

Keywords: Equity Returns, seasonaliy, turn-of-the-month

JEL Classification: G1, G13, G18

Suggested Citation

Xu, Wei and McConnell, John J., Equity Returns at the Turn of the Month (July 2006). Available at SSRN: https://ssrn.com/abstract=917884 or http://dx.doi.org/10.2139/ssrn.917884

Wei Xu (Contact Author)

HSBC School of Business, Peking University ( email )

China

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

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