Disruptive dates

  • Written by 
  • 16/09/2013
Could your gains be regular as clockwork 3 of 4

Residents of the United States, please read this important information before proceeding

Please read this important information before proceeding.

The start of the tax year

In London, share prices tend to rise in April, after the beginning of each new tax year. There is some dispute over the cause: Professors Jennifer Reinganum (Vanderbilt University) and Alan Shapiro (Marshall School of Business) argued in 1987 that it was the result of the introduction of capital gains tax in April 1965; Professor Ben Jacobsen and Cherry Zhang (Massey University), who continue to monitor the phenomenon to this day, argue that it actually began much earlier. Either way, the “April Bounce” has been consistent for decades.

The third trading day of the month

Various studies have shown that US stock markets show higher returns on a period starting on the last trading day of the month and ending on the third trading day of the following month. Indeed, after studying the performance of the S&P500 from 1928 to 1993, Professor William Ziemba (University of British Colombia) and Chris Hensel (Frank Russell Company) found “that the total return from the S&P500 over this 65-year-period was received mostly during the turn of the month”. A 2003 paper published in the International Review of Financial Analysis found that the effect was still taking place.

Ramadan (dates vary depending on Muslim Lunar Calendar and worshipper’s location)

Several studies have shown that the holy month of Ramadan has a significant effect on the financial markets of Islamic countries. One of the most recent was conducted by Harvard academic Mohamad Al-Ississ. It analysed the returns of financial markets across 17 Muslim countries between 1988 and 2008 and found that returns on the holiest day of Ramadan – Laylat al-Qadr, or the ‘Night of Power’ – averaged 0.37 per cent per year.

The autumnal/fall equinox

An exhaustive 2001 study from the Federal Reserve Bank of Atlanta examined major stock markets around the world and found that, in every location, returns tended to be at their lowest at the onset of autumn. The reason, it concluded, was seasonal affective disorder (SAD), a form of depression brought on by the shorter, darker days of autumn and winter.

Happily, returns tended to rise to a peak in the month following the winter solstice (the shortest day of the year). Also, the trend got more pronounced the further the market in question was from the equator, implying a direct correlation between price stability and levels of sunlight.

Daylight saving times

Various studies have found that when the clocks change, the markets suffer. According to the data, it doesn’t matter whether the clocks are being wound back or forward: the following week tends to see abnormally negative returns. Professor Mark Kamstra (York University) calculated in 2000 that the cumulative effect of both events equals almost one per cent of lost growth per year, relative to total market returns, in both British and American stock markets. Sleep experts say that even this mild unsettling of the body clock can lead to bad investment decisions.

Monday mornings

It is no secret that Mondays are not widely regarded as the fun day of the week, and various studies have shown that share prices tend to fall during the first hour of Monday morning trading. Reasons for the trend range from technical explanations, such as financial strategy being decided on a Monday morning meeting or lags in payment and cheque settlement processes, to psychological factors, such as traders feeling generally less upbeat as another week begins.