It is not SAD if you Sell in May: Seasonal Effects in Stock Markets Revisited

Abstract

This paper examines one type of calendar effect in financial markets, seasonal variation in the return on stocks. The effect analyzed is referred to as the Halloween Effect or Sell in May and Go Away. This refers to the finding that stock markets tend to return considerably less in the six months beginning in May than in the other half of the year. This effect has persisted over time and is seemingly large enough to be economically significant. The alternative, but somewhat overlapping hypothesis, that seasonal affective disorder, SAD, creates seasonal variation in the return on stocks is also addressed. Based on daily data from 75 stock markets during the period 2000–2014 there is a strong calendar effect in a large majority of the markets as the period from November to April witnesses higher returns than do the other six months of the year. However, there is only weak evidence that SAD had any effect on stock prices. The paper shows that Halloween Effect seems to be remarkably consistent, even after being widely discussed, and both statistically and economically significant. However, it remains unexplained. The SAD hypothesis finds less support in the data and seems of limited relevance economically.