Practical analysis for investment professionals
30 October 2012

The Halloween Indicator: A Stock Market Anomaly That Is Stronger than Ever

The Halloween indicator, popularized by the well-worn adage, “Sell in May and go away,” holds that stocks offer their best returns during the November through April period. But is such a seasonal trading strategy really valid and thus an opportunity to be exploited, or is the Halloween indicator more trick than treat?

Recent research seems to confirm what earlier studies found, which is that, remarkably, this stock market anomaly dating back to at least the 1930s has not been arbitraged away, and in fact, is stronger than ever.

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The practice of abandoning stocks beginning in May of each year is widely thought to have its origins in the United Kingdom. The privileged class would leave London and head to their country estates for the summer months, where they would largely ignore their investment portfolios. To this day, many stock market watchers have postulated that the corresponding impact of summer vacations on market liquidity and investors’ risk aversion is at least partly responsible for the difference in seasonal returns.

In what is considered to be a seminal piece of research on the subject, “The Halloween Indicator, ‘Sell in May and Go Away’: Another Puzzle,” authors Sven Bouman and Ben Jacobsen were among the first to document a strong seasonal effect in global stock markets. In 36 of the 37 developed and emerging markets they studied between 1973 and 1998, the authors found returns in the November through April period to be, on average, significantly higher than those in the May through October period, even after taking transaction costs into account. What puzzled the authors was the fact that, while the anomaly was widely known and seemed to offer considerable economic rewards, it had not been arbitraged away.

More recently, Jacobsen partnered with Cherry Zhang on a follow up study, titled, “The Halloween Indicator: Everywhere and All the Time,” and extended the research to 108 stock markets using all historical data available. The result was a sample of 55,425 monthly observations (including more than 300 years of UK data), which helped to rebut any criticisms of data mining and sample selection bias. The results were compelling, as the November through April “winter” period delivered returns that were, on average, 4.52% higher than the “summer” returns. The Halloween effect was evident in 81 out of 108 countries. The size of the Halloween effect varied across geographies. It was found to be stronger in developed and emerging markets than in frontier markets.

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Importantly, Jacobsen and Zhang also found the effect to be increasing in strength: Over the past 50 years, the difference in returns widened to an average of 6.25%. The results also showed that a sell-in-May strategy was successful in beating the market more than 80% of the time when employed over a five-year horizon, and more than 90% successful in beating the market over a 10-year horizon.

When it comes to determining equity allocations, investors are best served by focusing on the market’s underlying fundamentals. Even so, the Halloween indicator is a market anomaly that deserves investor attention because of the impressive returns it has provided, its persistence over time, and the fact that it cannot easily be explained away.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo credit: ©Getty Images/Photo by Jackson Patterson

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

10 thoughts on “The Halloween Indicator: A Stock Market Anomaly That Is Stronger than Ever”

  1. Prasad says:

    David, doesn’t the Halloween Indicator have more to do with consumer behavior (November through April being filled with more holidays and expenses) as compared to the rest of the months?

  2. Prasad,

    Thanks for visiting our blog and for your question. Bouman and Jacobsen (2002) tested whether the Halloween effect was sector-specific and found no evidence to support such a hypothesis; it was present in all sectors of the market without significant differences. Jacobsen and Visaltanachoti, in “The Halloween Effect in US Sectors,” (2006) found that all US stock market sectors and 48 out of 49 industries performed better during the November-April period than in the May-October period between 1926 and 2006. In more than two-thirds of all sectors and industries, the return difference was statistically significant. To your point, they did find performance differences across sectors and industries. However, the strongest Halloween effect was found in the clothes, construction, machinery and steel sectors. The weakest Halloween effect was found in the food, consumer, oil, and utilities sectors.


  3. Luiz Victor says:

    Hey Dave,

    In Brazil, the summer vacation is in December to February (ends up after the carnival). So would it be adapted for it as “Sell in November and Never Remember”?



  4. Thierry says:

    Hey David,

    I have done some research as well for the Halloween effect. I found the same results for Germany Japan and USA ( it was a little study for my bachelorthesis). We found that this Halloween effect could be explained by very poor results in September.

    Perhaps that my results are in line with yours?


  5. Ashutosh says:

    Hey David,

    Really nice article.

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