October Effect

What is ‘October Effect’

The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological expectation rather than an actual phenomenon. Most statistics go against the theory.

Explaining ‘October Effect’

Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. Black Monday, Tuesday and Thursday all occurred in October 1929, after which came the Great Depression. In addition, the great crash of 1987 occurred on October 19, and saw the Dow plummet 22.6% in a single day.

Further Reading

  • Does the October 1987 crash strengthen the co‐movements among national stock markets? – onlinelibrary.wiley.com [PDF]
  • Southeast Asian stock market linkages: evidence from pre-and post-October 1997 – muse.jhu.edu [PDF]
  • The international crash of October 1987: causality tests – www.jstor.org [PDF]
  • Dangers of Regulatory Overreaction to the October 1987 Crash – heinonline.org [PDF]
  • To what extent did stock index futures contribute to the October 1987 stock market crash? – academic.oup.com [PDF]
  • International stock market linkages: Evidence from the pre-and post-October 1987 period – www.sciencedirect.com [PDF]
  • The day of the week effect on stock market volatility – link.springer.com [PDF]
  • Seasonality in the returns of defaulted bonds: the January and October effects – www.jstor.org [PDF]
  • Trading activity and price behavior in the stock and stock index futures markets in October 1987 – www.aeaweb.org [PDF]