(BFM Bourse) – Thrill seekers do not shudder at the idea of investing in the stock market on the eve of All Saints' Day. Historical data even tends to reward this audacity… The “Halloween effect” indeed implies that the period from November to April offers the greatest upside potential on the financial markets.
Candy and other sweet treats, a costume and a good horror film, here are the classic paraphernalia for a good Halloween evening. Moreover, candy remains the most popular spending category, with total sales expected to reach $4.1 billion in the United States for this edition of Halloween, according to S&P Market intelligence, an increase of 3. 5% compared to 2023.
And for investors, this range also includes a well-chosen portfolio of stocks. It is believed that it is advisable to abstain from the stock market from May 1st before reinvesting from the day before November 1st and therefore on Halloween. Buying stocks on the eve of All Saints' Day to sell them six months later generates an abnormally high performance, while the period from May to October characterized by the adage “Sell in may and go away” or (“sell in may and go away”) go away”), most of the time results in a performance, if not negative, at least significantly lower than the return on risk-free assets.
And at the end of this tenth month of the year, this question naturally comes to the forefront. Especially after a complicated month of October on the markets, with the CAC 40 losing 2.70% at the close this Wednesday evening.
An effect visible almost everywhere, almost all the time
Two academics, specializing in seasonality issues, tested the “Halloween/Sell in May” effect on the largest sample of indices ever collected, and their conclusion is clear: invest on Halloween and take your profits in May yields 4% more than a strategy consisting of holding securities indefinitely. Professors Zhang Yi from Nottingham University Business School (China) and Ben Jacobsen from TIAS Business School (Netherlands) worked on nothing less than all available market data, a first in the world.
Their sample begins in 1693 with the London Stock Exchange and includes up to the most recent index, that of the Rwandan market inaugurated in 2013, i.e. 114 markets in total and more than 63,000 months of stock market performance to dissect…And the result is surprising in its scale since they only identified one market – the Mauritius Stock Exchange – presenting a higher return over time during the summer period.
“These analyzes report that for 65 developed and emerging markets, average stock market returns for the six months following Halloween were around 8.5% per year. Returns for the other six months of the year from May to October would only have an average yield of only 2.1%”, recalls John Plassard in his market note published last week.
Thus, over a period of ten years, an investor has a 90% chance of doing better than the market average by following a Halloween purchasing strategy, note the two researchers.
Zhang and Jacobsen's studies conclude that the “Halloween effect” is particularly visible in the most active and liquid markets, such as the United States and developed markets.
A simple yet effective strategy
However, this “Halloween” effect contradicts the heart of the modern theory of financial markets: the efficiency hypothesis which would say that no martingale makes it possible to beat the indices over time, that is to say to record performance significantly above the long-term average.
John Plassard, in turn, recalls this seasonality in the performance of stock indices, taking as an example the behavior of the S&P 500 over the last 120 years: “In 120 years, the Dow Jones index has fallen 38 times over the following six months. Halloween is almost one in three years, and it has declined by more than 5% on 23 occasions, or about one in five times Worldwide, this theory works with an even higher success rate. he notes, while specifying “that the past is not the guarantor of the future”.
This effect is also observed on the Nasdaq 100, rich in technology stocks, which generally recorded strong performances between October 31 and May 1, which corresponds well to the Halloween strategy, recalls the media ccn.com.
For example, from October 31, 2019 to May 1, 2020, the index saw a remarkable increase of approximately 23%. Likewise, the following year, the index gained approximately 27% during this same six-month period, suggests ccn.com.
Any ideas in the candy bucket?
So how can you benefit from the “Halloween” effect? John Plassard details several ETFs (index funds) for investing in this festive theme. He cites for example the VanEck Vectors Retail ETF which is invested in several discount retailers such as Costco, Ross, Dollar General and Walmart, which overweights this fund, or the Amplify Online Retail ETF best representing the theme of online shopping.
By way of summary, John Plassard reminds us that it is appropriate to focus “above all on tangible and fundamental elements.” However, when historical statistics match our economic visions, we are not against it. So no longer be afraid to 'Halloween!', he exclaims with a touch of humor.
Sabrina Sadgui – ©2024 BFM Bourse
