A calendar effect (or calendar anomaly) is the difference in behavior of a system that is related to the calendar such as the day of the week, time of the month, time of the year, time within the U.S. presidential cycle, or decade within the century. It is most often used in a financial context to describe a

market anomaly A market anomaly in a financial market is predictability that seems to be inconsistent with (typically risk-based) theories of asset prices. Standard theories include the capital asset pricing model and the Fama-French Three Factor Model, but a ...

; traders may use

market timing Market timing is the strategy of making buying or selling decisions of financial assets (often stocks) by attempting to predict future market price movements (market trends). The prediction may be based on an outlook of market or economic condition ...

to profit from moves in stock prices based on the calendar.

Examples

Stock market

* Sell in May *

January effect The January effect is a hypothesis that there is a seasonal anomaly in the financial market where securities' prices increase in the month of January more than in any other month. This calendar effect would create an opportunity for investors to ...

* January barometer * Mark Twain effect * The Congressional Effect * Santa Claus rally * Super Bowl indicator * United States presidential election cycle * Weekend effect: Over the very long run, on average, weekend returns in US stock prices have tended to be negative. * Midweek effect: In the US, stock returns from between the Monday close and the Wednesday close have tended to grow at a near-constant rate since the 1880s.

Other

* Grand supercycle *

Kondratiev wave In economics, Kondratiev waves (also called supercycles, great surges, long waves, K-waves or the long economic cycle) are hypothesized cycle-like phenomena in the modern world economy. The phenomenon is closely connected with the technology l ...

July effect The July effect, sometimes referred to as the July phenomenon, is a perceived but scientifically unfounded increase in the risk of medical errors and surgical complications that occurs in association with the time of year in which United States m ...

- risk of medical errors and surgical complications when new students start residencies *

Lunar effect The lunar effect is a purported correlation between specific stages of the roughly 29.5-day lunar cycle and behavior and physiological changes in living beings on Earth, including humans. A considerable number of studies have examined the effec ...

- correlation between the

lunar cycle A lunar phase or Moon phase is the apparent shape of the Moon's directly sunlit portion as viewed from the Earth. Because the Moon is tidally locked with the Earth, the same hemisphere is always facing the Earth. In common usage, the four majo ...

and behavior and physiological changes

Causes

Market price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a phy ...

s are often subject to seasonal tendencies because the availability and demand for an item is not constant throughout the year. For example,

natural gas Natural gas (also fossil gas, methane gas, and gas) is a naturally occurring compound of gaseous hydrocarbons, primarily methane (95%), small amounts of higher alkanes, and traces of carbon dioxide and nitrogen, hydrogen sulfide and helium ...

prices often rise in the winter because that

commodity In economics, a commodity is an economic goods, good, usually a resource, that specifically has full or substantial fungibility: that is, the Market (economics), market treats instances of the good as equivalent or nearly so with no regard to w ...

is in demand as a heating fuel. In the summer, when the demand for heat is lower, prices typically fall. Transactions and prices for housing are higher in the summer than in the winter. A 2018 study in the

Eurozone The euro area, commonly called the eurozone (EZ), is a Monetary union, currency union of 20 Member state of the European Union, member states of the European Union (EU) that have adopted the euro (Euro sign, €) as their primary currency ...

concluded that calendar effects are not abnormal, citing the increase in market values around the end of the month, when employees are paid.

Arguments that calendar effects do not exist or are not significant

According to the

efficient-market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis ...

, the calendar anomalies should not exist because the existence of these anomalies should be already incorporated in the prices of securities. A study published in 2001 argued that there is no

statistically significant In statistical hypothesis testing, a result has statistical significance when a result at least as "extreme" would be very infrequent if the null hypothesis were true. More precisely, a study's defined significance level, denoted by \alpha, is the ...

evidence for calendar effects in the

stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange a ...

, and that all such patterns are the result of

data dredging Data dredging, also known as data snooping or ''p''-hacking is the misuse of data analysis to find patterns in data that can be presented as statistically significant, thus dramatically increasing and understating the risk of false positives. Th ...

. However, there are contradictory findings and there is an ongoing debate on

behavioral economics Behavioral economics is the study of the psychological (e.g. cognitive, behavioral, affective, social) factors involved in the decisions of individuals or institutions, and how these decisions deviate from those implied by traditional economi ...

versus

rational choice theory Rational choice modeling refers to the use of decision theory (the theory of rational choice) as a set of guidelines to help understand economic and social behavior. The theory tries to approximate, predict, or mathematically model human behav ...

. According to a study published in 2015, calendar affects are a result of financial trends and the

business cycle Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...

, which affects investor psychology.

References

{{DEFAULTSORT:Calendar Effect Market trends Behavioral finance