Abstract
The Halloween effect is one of the most famous calendar anomalies. It is based on the observation that stock returns tend to perform much better over the winter half of the year (November–April) than over the summer half of the year (May–October). The vast majority of studies that investigated the Halloween effect over the recent decades focused only on stock indices. This means that they evaluated whether a stock index follows the Halloween effect pattern, but they omitted digging a little deeper and analyze the Halloween effect on the individual stocks level. This paper investigates to what extent the blue-chips stocks included in the Dow Jones Industrial Average are affected by the Halloween effect and whether the Halloween effect is widespread or the behavior of the whole index is driven by only a handful of stocks that are strongly affected by the Halloween effect. The results show that, although the strength of the Halloween effect varies quite rapidly from stock to stock, the vast majority of analyzed stocks experienced a notably higher average winter period than summer period returns over the 1980–2017 period. Moreover, in 18 out of 35 cases, the Halloween effect was statistically significant.
Highlights
Various calendar anomalies have been the center of attention of many researchers in recent decades
The aim of the paper is to find out whether the majority of the companies included in the Dow Jones Industrial Average stock index follow the Halloween effect pattern, or whether the behaviour of the whole stock index is driven by only a handful of companies that are extremely strongly affected by the Halloween effect
The analysis shows that the Halloween effect is a widespread phenomenon
Summary
Various calendar anomalies have been the center of attention of many researchers in recent decades. The studies were usually motivated by theoretical as well as practical targets. From the theoretical point of view, the existence of calendar anomalies proves the original efficient markets theory (Fama 1965) wrong. According to Fama, the share price always reflects all of the relevant information. The technical and fundamental analyses are unable to predict the future share price movements. The existence of a calendar anomaly means that the price development can be predicted to some extent. From the practical point of view, it is possible to assume that, in some cases, a calendar anomaly may be used as part of an investment strategy that is able to generate abnormal returns
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