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{{NPOV|date=May 2015}}
{{Use dmy dates|date=April 2023}}
{{Short description|An investment strategy for stocks}}
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'''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]] growth on average than the other months.<ref name="CNN">{{cite web|url=https://money.cnn.com/2008/05/01/markets/sellmay_markets/index.htm|title=Wall Street: Sell what in May and go away?|last=Twin|first=Alexandra|date=1 May 2008|work=money.cnn.com|publisher=CNN|accessdate=25 November 2008}}</ref><ref>{{cite web|url=https://finance.yahoo.com/tumblr/photoset-welcome-to-the-best-six-months-of-the-year-160049437.html|title=Welcome to the Best Six Months of the Year &#124; Tumblr Photoset - Yahoo Finance}}</ref><ref>{{cite web|url=http://www.agoraopus.com/blog/2015/sell-in-may-and-go-away|title=Sell in May and go away?}}</ref><ref>{{cite web|url=http://www.agoraopus.com/blog/2015/sell-in-may-and-go-away-part-2|title=Sell in May and go away - part 2}}</ref><ref>{{cite web|url=http://www.agoraopus.com/blog/2015/sell-in-may-and-go-away-part-3|title=Sell in May and go away - part 3}}</ref> In such strategies, stock holdings are sold or minimized at about 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 characterized 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.{{cn|date=May 2016}} 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 effect is strongest in Europe.<ref>{{cite AV media |url=https://www.bloomberg.com/news/videos/2019-05-20/sell-in-may-and-go-away-video |title=Sell in May and Go Away? |date=21 May 2019 |publisher=Bloomberg}}</ref>
⚫
'''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.<ref name="CNN">{{cite web|url=http://money.cnn.com/2008/05/01/markets/sellmay_markets/index.htm|title=Wall Street: Sell what in May and go away?|last=Twin|first=Alexandra|date=2008-05-01|work=money.cnn.com|publisher=CNN|accessdate=2008-11-25}}</ref><ref>{{cite web|url=http://finance.yahoo.com/tumblr/photoset-welcome-to-the-best-six-months-of-the-year-160049437.html|title=Welcome to the Best Six Months of the Year &#124; Tumblr Photoset - Yahoo Finance}}</ref><ref>{{cite web|url=http://www.agoraopus.com/blog/2015/sell-in-may-and-go-away|title=Sell in May and go away?}}</ref><ref>{{cite web|url=http://www.agoraopus.com/blog/2015/sell-in-may-and-go-away-part-2|title=Sell in May and go away - part 2}}</ref><ref>{{cite web|url=http://www.agoraopus.com/blog/2015/sell-in-may-and-go-away-part-3|title=Sell in May and go away - part 3}}</ref> 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]]. It is the belief that its better to avoid holding stock during the summer period.


==Causes==
⚫
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.
⚫
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]]. This appears to invalidate the [[efficient-market hypothesis]] (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 interest rate|risk free rate]]).


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).
==Cause of 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 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)<ref name="FTSE100 historical prices)">{{cite web|url=http://www.google.com/finance/historical?q=INDEXFTSE%3A.FTSE&start=0&num=30|title=Google Finance FTSE100 historical prices}}</ref>


==Academic response==
==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 the strategy did not work well in the time period April 1982&ndash;September 1987, November 1987&ndash;July 1998 or September 1998&ndash;April 2003.<ref name="EJW">{{cite journal|last=Maberly|first=Edwin D.|author2=Raylene M. Pierce |date=April 2004|title=Stock Market Efficiency Withstands another Challenge: Solving the "Sell in May/Buy after Halloween" Puzzle|journal=Econ Journal Watch|volume=1|issue=1|pages=29–46|url=http://www.econjournalwatch.org/pdf/Maberly%20and%20Pierce%20Comment%20April%202004.pdf|accessdate=25 November 2008}}</ref> Other [[regression model|regression models]] using the same data but controlling for extreme outliers found the effect to be significant.<ref>Witte, H. Douglas. "Outliers and the Halloween Effect". ''Econ Journal Watch'' 7(1): 91-98. [http://econjwatch.org/articles/outliers-and-the-halloween-effect-comment-on-maberly-and-pierce]</ref>
The effect has largely been ignored in academic circles. Any data is dismissed as an aberration because it contradicts established theory {{Citation needed|date=December 2014}}, especially the efficient-market hypothesis. Given that investors are highly rational, such an effect would not persist.

⚫
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&ndash;September 1987 plus November 1987&ndash;July 1998 plus September 1998&ndash;April 2003.<ref name="EJW">{{cite journal|last=Maberly|first=Edwin D.|author2=Raylene M. Pierce |date=April 2004|title=Stock Market Efficiency Withstands another Challenge: Solving the "Sell in May/Buy after Halloween" Puzzle|journal=Econ Journal Watch|volume=1|issue=1|pages=29–46|url=http://www.econjournalwatch.org/pdf/Maberly%20and%20Pierce%20Comment%20April%202004.pdf|accessdate=2008-11-25}}</ref> Other regression models using the same data but controlling for extreme outliers have found the Halloween effect to still be significant.<ref>Witte, H. Douglas. "Outliers and the Halloween Effect". ''Econ Journal Watch'' 7(1): 91-98. [http://econjwatch.org/articles/outliers-and-the-halloween-effect-comment-on-maberly-and-pierce]</ref>


“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.<ref>Mebane Faber. "Sell in May And Go Away Or The Seasonal Switching Strategy". [https://www.quantconnect.com/blog/history-of-non-market-data-correlations]</ref>
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.<ref>Mebane Faber. "Sell in May And Go Away Or The Seasonal Switching Strategy". [https://www.quantconnect.com/blog/history-of-non-market-data-correlations]</ref>


== See also ==
== See also ==
{{wiktionary|sell in May and go away}}
* [[Market timing]]
* [[Market timing]]
* [[Calendar effect]]
* [[Calendar effect]]
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==Further reading==
==Further reading==
*{{cite journal |doi=10.1257/000282802762024683 |title=The Halloween Indicator, "Sell in May and Go Away": Another Puzzle |year=2002 |author=Sven Bouman; Ben Jacobsen |journal=American Economic Review |volume=92 |pages=1618 |issue=5}}
*{{cite journal |doi=10.1257/000282802762024683 |title=The Halloween Indicator, "Sell in May and Go Away": Another Puzzle |year=2002 |author=Sven Bouman; Ben Jacobsen |journal=American Economic Review |volume=92 |pages=1618–1635 |issue=5|url=http://www.aeaweb.org/articles.php?doi=10.1257/000282802762024683 |url-access=subscription }}
*Maberly, Edwin D. and Pierce, Raylene M. "Stock Market Efficiency Withstands another Challenge: Solving the 'Sell in May/Buy after Halloween' Puzzle" (April 2004). [http://www.econjournalwatch.org/pdf/Maberly%20and%20Pierce%20Comment%20April%202004.pdf]
*Maberly, Edwin D. and Pierce, Raylene M. [http://www.econjournalwatch.org/pdf/Maberly%20and%20Pierce%20Comment%20April%202004.pdf "Stock Market Efficiency Withstands another Challenge: Solving the 'Sell in May/Buy after Halloween' Puzzle"] (April 2004).
*Jacobsen, Ben and Visaltanachoti, Nuttawat, The Halloween Effect in US Sectors (May 8, 2006). Available at SSRN: http://ssrn.com/abstract=901088
*Jacobsen, Ben and Visaltanachoti, Nuttawat, [https://ssrn.com/abstract=901088 "The Halloween Effect in US Sectors"] (8 May 2006).
* Andrade, Sandro C., Chhaoccharia, Vidhi, and Fuerst, Michael E. "'Sell in May and Go Away' Just Won't Go Away" (July 2012). Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2115197
* Andrade, Sandro C., Chhaoccharia, Vidhi, and Fuerst, Michael E. [https://ssrn.com/abstract=2115197 "'Sell in May and Go Away' Just Won't Go Away"] (July 2012).


{{stock market}}
{{stock market}}

Latest revision as of 17:08, 17 February 2024

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 growth on average than the other months.[1][2][3][4][5] In such strategies, stock holdings are sold or minimized at about 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 characterized 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.[citation needed] 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 effect is strongest in Europe.[6]

Causes[edit]

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. This appears to invalidate the efficient-market hypothesis (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).

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[edit]

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 the strategy did not work well in the time period April 1982–September 1987, November 1987–July 1998 or September 1998–April 2003.[7] Other regression models using the same data but controlling for extreme outliers found the effect to be significant.[8]

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.[9]

See also[edit]

Look up sell in May and go away in Wiktionary, the free dictionary.

References[edit]

  1. ^ Twin, Alexandra (1 May 2008). "Wall Street: Sell what in May and go away?". money.cnn.com. CNN. Retrieved 25 November 2008.
  2. ^ "Welcome to the Best Six Months of the Year | Tumblr Photoset - Yahoo Finance".
  3. ^ "Sell in May and go away?".
  4. ^ "Sell in May and go away - part 2".
  5. ^ "Sell in May and go away - part 3".
  6. ^ Sell in May and Go Away?. Bloomberg. 21 May 2019.
  7. ^ Maberly, Edwin D.; Raylene M. Pierce (April 2004). "Stock Market Efficiency Withstands another Challenge: Solving the "Sell in May/Buy after Halloween" Puzzle" (PDF). Econ Journal Watch. 1 (1): 29–46. Retrieved 25 November 2008.
  8. ^ Witte, H. Douglas. "Outliers and the Halloween Effect". Econ Journal Watch 7(1): 91-98. [1]
  9. ^ Mebane Faber. "Sell in May And Go Away Or The Seasonal Switching Strategy". [2]

Further reading[edit]

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