The Details Plotted
In the last issue of Seasonal Insights I showed you the statistics associated with the popular truism "sell in May and go away" in the countries with the eleven largest stock markets. The comparison divided the calendar year into a summer half-year from May to October and a winter half-year from November to April. In all eleven countries, the winter half-year outperformed the summer half-year. As announced on that occasion, here are the details for all countries that were reviewed.
October meeting after not selling in May
Below are the respective price patterns in the form of charts. These show the chained stock market performance in all eleven countries during the summer months in red, during the winter months in green as well as the full year returns (=actual performance of the index) in blue.
Note: the charts are linearly scaled, as a result of which the performance patterns of the summer and winter half-year periods visually don't appear to add up to the full year performance.
Canada: Summer Half-Year vs. Winter Half-Year
The winter half-year even beats the full year!
China: Summer Half-Year vs. Winter Half-Year
Prices rise almost as strongly in the winter months as over the full year
France: Summer Half-Year vs. Winter Half-Year
The winter half-year beats the full year significantly!
Germany: Summer Half-Year vs. Winter Half-Year
Once again the winter half-year clearly beats even the year as a whole
Japan: Summer Half-Year vs. Winter Half-Year
If one employs the "sell in May" strategy, even Japan is in a long term bull market
Korea: Summer Half-Year vs. Winter Half-Year
During the winter prices rise almost as much as over the year as a whole
Taiwan: Summer Half-Year vs. Winter Half-Year
In Taiwan the summer half-year is deeply in the red
United Kingdom: Summer Half-Year vs. Winter Half-Year
It suffices to be invested during the winter months
US: Summer Half-Year vs. Winter Half-Year
The winter half-year beats the summer half-year, but not the full year
As you can see, only two of the eleven largest stock markets in the world are actually posting notable gains in the summer half-year: Hong Kong and India.
In all other markets it was sensible and profitable to sell in early May - as in these other countries the markets either posted losses or gains of less than one percent in the summer months. Investing in these markets during the summer was barely worth it, after all, by employing the "sell in May" strategy one is also exposed to less risk because one is only invested half of the time.
Detailed Results by Country
The following table once again shows the half-year results of the eleven countries in detail. Half-year periods in which it was profitable to be invested on a risk-adjusted basis are highlighted in green. Half-year periods in which losses were generated are highlighted in red. Note: the table in the last issue of Seasonal Insights by mistake showed Canada's data from 1977 onward.
Overview of Country Selection: Half-Year Results
Investing during the summer period was not profitable
The table once again underscores that the summer weakness (a.k.a. the "Halloween Effect") does indeed exist. In this case we are looking at a very simple and well-known rule. There exist many more seasonal patterns, which one can inter alia identify with the Seasonax app on Bloomberg and/ or Thomson-Reuters. Many of them are still completely unknown.
"Sell in May" by contrast is a rule people have been aware of for decades. Nevertheless, the pattern still works. Apparently a far too few investors are actually taking action based on their knowledge of the pattern and there is almost no arbitrage activity either. The stability and persistence of the pattern suggests that "sell in May" will continue to work in the future.
Sometimes the simple rules are the best!
Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix method in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. For in-depth information on the Seasonax app click here (n.b.: subscriptions through Acting Man qualify for a special discount! Details are available on request).
Charts and table by Seasonax
Editing, chart and image captions by PT