Composite Seasonal Equity Trading Strategy

Abstract

The main focus of this paper is to show that calendar/seasonal anomalies are well-working even in the most recent periods and, additionally, to find a way how to combine them in a search for profit from the practitioner's point of view. This paper is a case study of possible usage of following anomalies: Turn of the Month in Equity Indexes, Federal Open Market Committee Meeting Effect in Stocks, Option-Expiration Week Effect and The Payday Effect. Firstly, it was found that each individual trading strategy is profitable and those strategies could or probably should be combined into one complex composite seasonal strategy. The analysis has also found that the strategy mentioned above could be enhanced by the addition of a trend factor. To be more precise, data suggest that it is worth to systematically trade only if the trend factor signals to do that. Such addition drastically reduces drawdowns and the resulting strategy simply does not enter into trading positions when the market situation is not favorable.