The “Halloween Indicator” [Investment Strategy]

What it is – How it works?

[By Dr. Marcinko and staff reporters]

Sell in May and go away is an investment strategy for stocks based on a theory (sometimes known as the Halloween indicator) that the period from November to April inclusive has significantly stronger growth on average than the other months.




[Copyright 2018 iMBA Inc., All rights reserved. USA]


The Strategy

In such strategies, stocks are sold at the start of May and the proceeds held in cash (e.g. a money market fund); stocks are bought again in the autumn, typically around Halloween. “Sell in May” can be characterised as the belief that it is better to avoid holding stock during the summer period.

Though this seasonality is often mentioned informally, it has largely been ignored in academic circles (perhaps being assumed to be a mere superstition). Nonetheless analysis by Bouman and Jacobsen (2002) shows that the effect has indeed occurred in 36 out of 37 countries examined, and since the 17th century (1694) in the United Kingdom; it is strongest in Europe. While the effect may reflect a failure of the efficient-market hypothesis, alternatives exist such as small sample size or time variation in expected stock market returns.




Causes the Effect

Although it’s not clear what causes the effect, what’s most interesting is that it shows that stock market returns in many countries during the period May–October are systematically negative or lower than the short-term interest rate, which also goes against the efficient-market hypothesis. Stock market returns should not be predictably lower than the short-term interest rate (risk free rate).

Popular media often refer to this market wisdom in the month of May, claiming that in the six months to come things will be different and the pattern will not show.

However, as the effect has been strongly present in most developed markets (including the United States, Canada, Japan, the United Kingdom and most European countries) in the last decade – especially May–October 2009 – these claims are often proved wrong.

That said, between April 30 and October 30, 2009, the FTSE 100 gained 20% (from 4,189.59 to 5,044.55)


The effect has largely been ignored in academic circles. The idea contradicts much established theory, especially the efficient-market hypothesis.

Maberly and Pierce extended the data to April 2003. They also tested the strategy for April 1982 through April 2003 except for two months, October 1987 and August 1998. They found that it doesn’t work well in the time period April 1982–September 1987 plus November 1987–July 1998 plus September 1998–April 2003.[7] Other regression models using the same data but controlling for extreme outliers have found the Halloween effect to still be significant.[8]

“Sell in May and go away” has persisted as a profitable market-timing strategy for stock investors, according to a follow-up study by Andrade, Chhaochharia and Fuerst (2012). They find that the Sell-in-May seasonal pattern persists after the end of Bouman and Jacobsen’s (2002) sample. This is important in showing that the Halloween effect is not a statistical fluke detected by data mining. Strikingly, in the 1998–2012 sample on average November–April returns are larger than May–October returns in all 37 markets they study. On average, the difference is equal to about 10% percentage points. Also strikingly, the magnitude of the difference is the same in Bouman and Jacobsen’s (2002) and in the out-of-sample analysis of Andrade, Chhaochharia and Fuerst (2012). Further backtesting by Mebane Faber has shown this effect has been in place since 1950.

Source: Sell in May Wikipedia, the free encyclopedia





Even More:

Much More:


Was this indicator appropriate for 2018?


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9 Responses

  1. Don’t Forget

    Dia de los Muertos, Mexico’s Day of the Dead, which traces to the pre-Columbian era and stretches from October 28 until November 2nd.

    What to Know About Mexico’s Day of the Dead!



  2. Halloween indicator

    I was unaware of this “indicator.” Thanks



  3. Presidential Indicator?

    The S&P 500 index finished lower over the period of July 31 to Oct. 31. When that happens in election years, it isn’t a great sign for an incumbent presidential party to win, according to Sam Stovall, chief investment strategist at research firm CFRA.



  4. Last week, the S&P 500 fell nearly 6%, its worst week since the coronavirus rudely entered our lives in March.

    Investors wish they could take a long weekend in Aruba, but in 2020 there’s no such thing: Tomorrow is Election Day, which will determine what party holds power in D.C. for the next few years.

    What does that mean for stocks?

    Bank of America Global Research analyzed historic S&P performance under presidents from both parties. The takeaways:

    * The market’s average return has been higher under Democratic presidents than it’s been under Republicans.
    * Regardless of party, the S&P performs better in a president’s first term than in the second.
    * Finally, stocks have performed better when leadership changes from one political party to the other.




    There are a TON of aphorisms that come from market patterns. None of them stand a chance against having a plan and sticking with it. That is more for day traders or short-term trading patterns and not for the investor that is serious and long-term.

    However, a few fun facts:

    November is the number one performing month for the s&p and the number two performing month for the Dow since 1950.
    November is the number two performing month on NASDAQ since 1971.
    November does typically start the best 6-month strategy which of course ends with selling in May.
    The day before and after Thanksgiving day combined have only had 16 losses in 67 years.
    The week before Thanksgiving the Dow is up 19 out of the last 26 years.
    Presidential election year November’s rank number one for the Dow and the s&p.

    Any thoughts?


  6. Joe,
    Many thanks for your “fun” comments; interesting.


  7. 2021 Halloween
    A HUGE winner.


  8. Halloween 2021
    The major indexes closed at record highs to round out their best month so far this year. Microsoft also overtook Apple to become the most valuable publicly listed company in the world.
    Dr. David E. Marcinko MBA


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