TBOTS Empirical Evidence: Negative Returns for Stocks in Summer
“Sell in May and go away” is an old saying among investors claiming that stocks don’t move significantly in the right direction between May and October. If that would be true investors could deposit their money in a bank account for four months and enjoy the summer months free of stock market worries.
(PRWEB) June 7, 2002
Empirical Evidence?
So do stocks perform poorly during these months or is it nothing more than a poor excuse for fund managers to take it easy during the summer months?
TBOTS tested the performance of two main US indices - the Dow Jones Industrial Average and the NASDAQ Composite – and compared their performance over two periods:
between June and September, and between October and May.
The results provide strong evidence that the US stock markets perform significantly less well between the end of May and the end of September (called the ‘Summer Period’). Over the last 10 years the Dow Jones produced an average negative annualised return of 2.1% over the summer period compared to an average annualised return of 13.5% over the rest of the year. Measured over a period of the last 20 years the summer period produced an annualised return of 1.9% against 10.2% for the rest of the year. Since 1952 the summer period has returned on average minus 0.4% annualised against 5.1% for the rest of the year.
The NASDAQ provides similar evidence although less clearly spelled out. Over the last 20 years the summer period returned 3.2% annualised compared to 10.4% for the rest of the year. Measured over the last 10 years the summer period even seems largely in line with the rest of the year. However when the exceptional years 1999 – 2001 are stripped out, the results are in line with the results over the last 20-year period.
TABLE: Returns Dow Jones Industrial Average (INDU)
Since Rest of the Year Summer
1992 13.5% (2.1)%
1982 10.2% 1.9%
1952 5.1% (0.4)%
Source: TBOTS, www. tbots. com, June 2002
TABLE: Returns NASDAQ Composite (COMPQ)
Since Rest of the Year Summer
1992 11.2% 9.9%
1982 10.4% 3.2%
Source: TBOTS, www. tbots. com, June 2002
Why does it occur?
Since there is clear empirical evidence of the Summer Period effect, the question remains what causes this effect.
Common sense dictates that there must be a direct link with the annual holiday period. Before taking their annual leave people tend to clean up their share portfolio or at least reduce the exposure and risk level of their portfolio. These actions result in sell orders leading to lower price levels.
Than there is this: the more wide spread a theory, the more people will act on it and the Summer Period effect is on its way to become a self-fulfilling prophecy further strengthening the empirical evidence.
And what about 2002?
The Summer Period effect has historically worked but what about the effect in 2002?
The potential threat of higher interest rates, disappointing corporate profits, rising oil prices, ongoing accounting concerns and international political tension make it unlikely that the stock markets will proof the Summer Period effect wrong this year.
With this in mind most investors can take it easy for the months to come. For those investors determined to trade investment strategies that produce healthy returns during the summer months, TBOTS can surely assist.
About TBOTS
TBOTS (trading bots) is the first fully web-based technology enabling investors to simulate their own trading and investment ideas on decades of historic data, and to track their ideas on a continuous basis. TBOTS is easy to use, offers a free version and doesnÂ’t require programming or data feeds.
TBOTS is offered to retail investors at http://www. tbots. com (http://www. tbots. com). More powerful versions of the TBOTS technology are made available to institutions in three formats: (1) TBOTS Hosting Service is a white-labeled hosted version aimed at financial service web sites seeking to offer TBOTS to their users; (2) TBOTS Dedicated Server is a high performance platform powering proprietary trading analysis; (3) TBOTS Professional Services is a service for customers requiring a tailored product.
TBOTS is developed by London based Eurasia Software Ltd., a provider of advanced technology solutions to financial institutions.
More information is available on the TBOTS web site at http://www. tbots. com (http://www. tbots. com) or by email amaury@tbots. com or telephone +44 20 7581 3476.
