Halloween Effect is treat, not trick: study

It’s a good day to get back into the markets.

A study out of Massey University in New Zealand has found statistical evidence that stocks tend to perform better between November and April – and have done so worldwide for the last three centuries.

This is known as the Halloween, or Sell-in-May, effect.

Read: Sell in May and go away 2012?

The researchers examined all available stock market indices for 108 stock markets over 319 years.

“Winter returns – November through April – are 4.52% higher than summer returns,” they state.

Read: Autumn depresses clients and stock markets

What’s more, the Halloween Effect has recently become more pronounced.

“The average difference between November-April and May-October returns is 6.25% over the past 50 years,” they say. “A Sell-in-May trading strategy beats the market more than 80% of the time over five-year horizons.”

The study notes the Halloween Effect is stronger in developed and emerging markets than in frontier and rarely studied markets, but adds this may be due to small sample sizes. The Middle East and Oceania are the only two continents where no countries exhibit a significant Halloween Effect.

Read: Help clients overlook seasonal trends

As for the cause, a 2009 study showed that trading activity is lower during the three summer holiday months in many countries. The Massey University authors posit those vacationers experience changing risk aversion or liquidity constraints, causing them to trade less.

Read the study here.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.