The Halloween indicator, "sell in may and go away":
Another puzzle
This paper examines whether stock returns are indeed significantly lower during the May--
October period than during the remainder of the year.
- Surprisingly, we find the Sell in May effect is present in 36 of the 37 countries in our
sample. The effect tends to be particularly strong and highly significant in European
countries, and also proves to be robust over time. Sample evidence shows that in a
number of countries it has been noticeable for a very long time, and in the U.K. stock
market, for instance, we have found evidence of a Sell in May effect as far back as 1694.
We find no evidence that the effect can be explained by factors like risk, cross correlation
between markets, or the January effect. We also try some alternative explanations-that
we discuss later in this paper-but none of them seems to provide an explanation for the
puzzle.
Section I presents the puzzle and discuss the data and the methodology used
Section II contains a short discussion of possible explanations and of the tests performed
I. The Puzzle
- The chance of finding a Sell in May effect is 50 percent or 0.5, and assuming market
efficiency and independent stock markets around the world, the chance of finding a Sell in
May effect in every country out of 37 countries would equal
A. Data
- For our investigation we start with (continuously compounded) the monthly stock returns
of the value-weighted market indices of 19 countries (local currencies).
- These countries are:
o Australia,
o Austria,
o Belgium,
o Canada,
, o Denmark,
o France,
o Germany,
o Hong Kong,
o Ireland,
o Italy,
o Japan,
o The Netherlands,
o Norway,
o Singapore,
o South Africa,
o Spain,
o Switzerland,
o the United Kingdom,
o and the United States.
- All series are MSCI reinvestment indices (local currency) over January 1970-August
1998, except the index for South Africa which starts in 1973 and is taken from
Datastream.
- We also use data from markets for which MSCI reinvestment indices are available since
1988.
- Among these series are several emerging markets series.
o Claessens et al. (1995) argue that due to their higher degree of segmentation
they provide an interesting "out-of-sample" test.
o Whether or not emerging markets are (partially) segmented or integrated is still an
ongoing discussion.
o Many of these so-called emerging markets are, in fact, fully "integrated" in the
sense that there are no restrictions on capital mobility.
o We consider these series as a first "out-of-sample test" for the robustness of the
Sell in May effect.
- We consider market returns of
o Argentina,
o Brazil,
o Chile,
o Finland,
o Greece,
o Indonesia,
o Ireland,
o Jordan,
Another puzzle
This paper examines whether stock returns are indeed significantly lower during the May--
October period than during the remainder of the year.
- Surprisingly, we find the Sell in May effect is present in 36 of the 37 countries in our
sample. The effect tends to be particularly strong and highly significant in European
countries, and also proves to be robust over time. Sample evidence shows that in a
number of countries it has been noticeable for a very long time, and in the U.K. stock
market, for instance, we have found evidence of a Sell in May effect as far back as 1694.
We find no evidence that the effect can be explained by factors like risk, cross correlation
between markets, or the January effect. We also try some alternative explanations-that
we discuss later in this paper-but none of them seems to provide an explanation for the
puzzle.
Section I presents the puzzle and discuss the data and the methodology used
Section II contains a short discussion of possible explanations and of the tests performed
I. The Puzzle
- The chance of finding a Sell in May effect is 50 percent or 0.5, and assuming market
efficiency and independent stock markets around the world, the chance of finding a Sell in
May effect in every country out of 37 countries would equal
A. Data
- For our investigation we start with (continuously compounded) the monthly stock returns
of the value-weighted market indices of 19 countries (local currencies).
- These countries are:
o Australia,
o Austria,
o Belgium,
o Canada,
, o Denmark,
o France,
o Germany,
o Hong Kong,
o Ireland,
o Italy,
o Japan,
o The Netherlands,
o Norway,
o Singapore,
o South Africa,
o Spain,
o Switzerland,
o the United Kingdom,
o and the United States.
- All series are MSCI reinvestment indices (local currency) over January 1970-August
1998, except the index for South Africa which starts in 1973 and is taken from
Datastream.
- We also use data from markets for which MSCI reinvestment indices are available since
1988.
- Among these series are several emerging markets series.
o Claessens et al. (1995) argue that due to their higher degree of segmentation
they provide an interesting "out-of-sample" test.
o Whether or not emerging markets are (partially) segmented or integrated is still an
ongoing discussion.
o Many of these so-called emerging markets are, in fact, fully "integrated" in the
sense that there are no restrictions on capital mobility.
o We consider these series as a first "out-of-sample test" for the robustness of the
Sell in May effect.
- We consider market returns of
o Argentina,
o Brazil,
o Chile,
o Finland,
o Greece,
o Indonesia,
o Ireland,
o Jordan,
