A calendar effect (or calendar anomaly) is any

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 ...

, different behaviour of stock markets, or economic effect which appears to be 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, decade within the century, etc... Some people believe that if they do exist, it is possible to 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. The prediction may be based on an outlook of market or economic conditions resulting fro ...

. Seasonal patterns are not confined to prices; many other systems can exhibit the same kind of calendar effect. However, the term is most often used in an economic context.

Causes

Market price A price is the (usually not negative) quantity of payment or Financial compensation, compensation given by one Party (law), party to another in return for Good (economics), goods or Service (economics), services. In some situations, the pr ...

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 called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbon ...

prices often rise in the winter because that

commodity In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a co ...

is in demand as a heating fuel. In the summer, when the demand for heat is lower, prices typically fall.

Examples

Notable calendar effects include: * Sell in May principle (or Halloween indicator) *

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 The January barometer is the hypothesis that stock market performance in January (particularly in the U.S.) predicts its performance for the rest of the year. So if the stock market rises in January, it is likely to continue to rise by the end of ...

Mark Twain effect In some stock markets, the Mark Twain effect is the phenomenon of stock returns in October being lower than in other months. The name comes from a line in Mark Twain's Pudd'nhead Wilson: "October. This is one of the peculiarly dangerous months to sp ...

The Congressional Effect The Congressional effect is a stock market phenomenon where stock prices tend to show a correlation in performance and volatility to the operating schedules of the US Congress. The phenomenon was coined as “The Congressional effect” by Eric T. ...

* Santa Claus rally *

Super Bowl indicator The Super Bowl Indicator is a spurious correlation that says that the stock market's performance in a given year can be predicted based on the outcome of the Super Bowl of that year. It was "discovered" by Leonard Koppett in 1978 when he realized ...

Lunar effect The lunar effect is a purported unproven correlation between specific stages of the roughly 29.5-day lunar cycle and behavior and physiological changes in living beings on Earth, including humans. In some cases the purported effect may depend on ...

United States presidential election cycle The four-year United States presidential election cycle is a theory that stock markets are weakest in the year following the election of a new U.S. president. It suggests that the presidential election has a predictable impact on America's econom ...

Arguments that calendar effects do not exist or are not significant

In their 2001 paper ''Dangers of data mining: The case of calendar effects in stock returns'', Ryan Sullivan et al. argue that there is no

statistically significant In statistical hypothesis testing, a result has statistical significance when it is very unlikely to have occurred given the null hypothesis (simply by chance alone). More precisely, a study's defined significance level, denoted by \alpha, is the p ...

evidence for calendar effects in the stock market, 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. ...

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

behavioral economics Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory. ...

versus

rational choice theory Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postul ...

. 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 b ...

, the calendar anomalies should not exist because the existence of these anomalies should be already incorporated in the prices of securities. Calendar anomalies are significantly influenced by the financial trend, because the investors' psychology depends on the

business cycle Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by exami ...

, and their behavioral change influences not only the market's performance but also the calendar anomalies (Vasileiou (2015)). Moreover, some calendar anomalies seem to fade if we do not revise them. E.g. if examine the Turn of the Month effect using the dominant (-1,+3) definition as proposed by Lakonishok and Smidt(1988), this effect weakens, unless we revise the window period/definition (Vasileiou (2018)).

References

{{DEFAULTSORT:Calendar Effect Market trends Behavioral finance