Definition
A calendar effect is any market anomaly or economic effect which appears to be related to the calendar. Such effects include the apparently different behaviour of stock markets on different days of the week, different times of the month, and different times of year. The term sometimes includes multi-year effects, such as the 10-year cycle, or the 4-year U.S. presidential election cycle. It also sometimes includes time of day effects.
Calendar Effect
What is ‘Calendar Effect’
A collection of assorted theories that assert that certain days, months or times of year are subject to above-average price changes in market indexes and can therefore represent good or bad times to invest. Some theories that fall under the calendar effect include the Monday effect, the October effect, the Halloween effect and the January effect.
Explaining ‘Calendar Effect’
Most of the evidence for these effects is anecdotal, although there is a slight statistical case to be made for some of them, which is more than enough to encourage some investors to place their faith in them.
Proponents of the October effect, one of the most popular theories, argue that October is when some of the greatest crashes in stock market history, including 1929’s Black Tuesday and Thursday and the 1987 stock market crash, occurred. While statistical evidence doesn’t support the phenomenon that stocks trade lower in October, the psychological expectations of the October effect still exist.
Further Reading
- Stock market anomalies: A survey of calendar Effect in BSE-SENSEX – papers.ssrn.com [PDF]
- Calendar effects in Chinese stock market – eprints.soton.ac.uk [PDF]
- TESTING CALENDAR EFFECT ON NIGERIAN STOCK MARKET RETURNS: METHODOLOGICAL APPROACH. – search.ebscohost.com [PDF]
- Calendar effects in Eastern European financial markets: evidence from the Czech Republic, Slovakia and Slovenia – www.tandfonline.com [PDF]
- The congressional calendar and stock market performance – www.sciencedirect.com [PDF]
- Lunar calendar effect: evidence of the Chinese Farmer's Calendar on the equity markets in East Asia – www.tandfonline.com [PDF]
- Javanese lunar calendar effect (Primbon) on abnormal return – papers.ssrn.com [PDF]
- Calendar effect: Do investors overreact to the seasonality of the US hotel Industry? – www.tandfonline.com [PDF]