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<DIV><FONT size=+1><A
href="http://papers.ssrn.com/paper.taf?ABSTRACT_ID=76248";>http://papers.ssrn.com/paper.taf?ABSTRACT_ID=76248</A></FONT></DIV>
<DIV><FONT size=+1></FONT> </DIV>
<DIV><FONT size=+1>The Halloween Indicator, 'Sell in May and Go Away': Another
Puzzle</FONT> </DIV>
<P align=center><A
href="http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=63368";>BEN
JACOBSEN</A><BR>Universiteit van Amsterdam, Faculty of Economics &
Econometrics<BR><A
href="http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=76249";>SVEN
BOUMAN</A><BR>ING Investment Management<BR>
<HR align=center width="25%">
<CENTER>September 1999<BR><I></I><BR></@xx></CENTER>
<P><BR><FONT size=-1><STRONG>Abstract:</STRONG><BR><BR>We document the existence
of a new seasonal effect in stock returns based on the popular market wisdom
'Sell in May and go away', also known as the 'Halloween indicator'. According to
this market wisdom, stock market returns should be higher in the November-April
period than the May-October period. Surprisingly, we find this wisdom to be true
in 36 of the 37 developed and emerging markets in our sample. This 'Sell in May'
effect tends to be particularly strong in European countries and is robust over
time. For instance, out of sample evidence shows that in the UK stock market,
the effect has been present since 1694. We find no evidence that this effect can
be explained by the January effect, the stock market crash of 1987, seasonality
in dividend payments or time varying risk premia. We test several possible
explanations for this 'Sell in May' effect. Only one survives closer scrutiny.
We find that the size of the effect tends to be strongly related to length and
timing of vacations. This suggests that (summer) vacations, especially in
Europe, have a surprisingly strong seasonal effect on stock returns in financial
markets. This is so surprisingly strong that we cannot reject the null that
stock returns are zero during May through October. In the paper we present a
simple theoretical model in the spirit of De Long, Shleifer, Summers and
Waldmann (1990) that can account for this empirical relationship between this
seasonality in stock returns and changes in the number of investors or shifts in
risk aversion over time. The results of a survey amongst investors suggest that
vacations indeed cause a shift in risk aversion. This calendar effect is
exceptional for several other reasons as well. It is - unlike other calendar
effects - not only present in most developed markets, but also in emerging
markets. Furthermore, the economic significance of this calendar anomaly is
substantial. Finally, data mining as suggested by Sullivan, Timmermann and White
(1998) seems an unlikely explanation for this anomaly.
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