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

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, as ...

growth on average than the other months. In such strategies, stocks are sold at the start of May and the proceeds held in cash (e.g. a

money market fund A money market fund (also called a money market mutual fund) is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are managed with the goal of maintaining a hi ...

); stocks are bought again in the autumn, typically around

Halloween Halloween or Hallowe'en (less commonly known as Allhalloween, All Hallows' Eve, or All Saints' Eve) is a celebration observed in many countries on 31 October, the eve of the Western Christian feast of All Saints' Day. It begins the observanc ...

. "Sell in May" can be characterised as the belief that it is better to avoid holding stock during the summer period. Though this

seasonality In time series data, seasonality is the presence of variations that occur at specific regular intervals less than a year, such as weekly, monthly, or quarterly. Seasonality may be caused by various factors, such as weather, vacation, and holidays a ...

is often mentioned informally, it has largely been ignored in academic circles. 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 The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...

; it is strongest in Europe.

Causes

Data show that stock market returns in many countries during the May–October period are systematically negative or lower than the short-term

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...

. This appears to invalidate 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 bas ...

(EMH), which predicts that any such returns (e.g., from shorting the market) would be bid away by those who accept the phenomenon. Alternative causes include small sample size or time variation in expected stock market returns. EMH predicts that stock market returns should not be predictably lower than the short-term interest rate (

risk free rate The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations. Since the risk-free ra ...

). Popular media consider this phenomenon each May, generally rejecting it. However, the effect has been strongly present in most developed markets (including the United Kingdom, the United States, Canada, Japan, and most European countries).

Academic response

Maberly and Pierce extended the data to April 2003 and tested the strategy for April 1982 through April 2003 except for two months, October 1987 and August 1998 (when markets crashed). They found that it did not work well in the time period April 1982–September 1987, November 1987–July 1998 or September 1998–April 2003. Other

regression models Regression or regressions may refer to: Science * Marine regression, coastal advance due to falling sea level, the opposite of marine transgression * Regression (medicine), a characteristic of diseases to express lighter symptoms or less extent ( ...

using the same data but controlling for extreme outliers found the effect to be significant. A follow-up study by Andrade, Chhaochharia and Fuerst (2012) found that the seasonal pattern persisted. In the 1998–2012 sample on average November–April they found that returns are larger than May–October returns in all 37 markets they studied. On average, the difference is equal to about 10 percentage points. The magnitude of the difference is the same in both studies. Further backtesting by Mebane Faber found the effect as early as 1950.Mebane Faber. "Sell in May And Go Away Or The Seasonal Switching Strategy"

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Causes

Academic response

See also

References

Further reading