Seasonality I: day-of-the-month

This series looks at US stock market seasonality on various timeframes.  The Fama-French (FF) daily book-to-market (B/M) portfolios are used.

Marketsci has posted extensively on this topic, showing that “strong” and “weak” days tend to persist on a walk-forward basis.

This analysis is slightly different in that calendar days are used rather than trading days.  Daily return is plotted against day of the month from 1984-2014.

Capture3

The trendline shows that calendar days 1,2 and 25-31 have higher average returns than other days, irrespective of where the weekend falls.

Holding the FF large value portfolio on days 1,2 and 25-31 results in the following equity curve (frictionless).  Annual return is 10.2% with an exposure around 25% and 12 trades per year.

Capture2

It’s interesting that even during the last 2 recessions, these days perform well.  (See 2000-2002 and 2008).

This may work better with the addition of short term entry and exit triggers but I have yet to investigate.  The intent of the equity curve is only to illustrate the principle.

Next up: day-of-year seasonality.

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13 thoughts on “Seasonality I: day-of-the-month

    • Its just a simple Excel study:

      1) Open the 2×3 daily portfolios from Ken French’s site.
      2) Extract the day from the date column (last 2 digits):

      =VALUE(RIGHT(A1,2))

      3) Test for days 1,2 and 25-31

      =IF(B1>24,1,0) + IF(B1<3,1,0)

      4) Add up the daily returns where the test=1.

      • Expectancy is ~1% a trade which is large enough to overcome friction. Simple triggers such as buying on a 3 day low and selling on a 3 day high around those dates may be an improvement (to be tested).

      • 1% a trade? How many stocks you have to buy? You use FF library in you test right? So everytime you go in and out the market you need to buy a lot of stocks…. someone small cap. The first step is to understand the number of stocks to buy.

      • You can buy the ETF which approximates the FF portfolio e.g. VTV for large cap value, PDP for momentum.

    • Please try to be a little more constructive. I just tested VIVAX *without dividends* 2000-2014: 8.8% per annum, similar equity curve

  1. Yes confirm. VIVAX 10/02/1999 to yesterday: CAGR 7.49% MDD -19.2%
    1999 12,37%
    2000 18,34%
    2001 7,89%
    2002 -11,15%
    2003 18,55%
    2004 12,50%
    2005 11,62%
    2006 7,40%
    2007 -2,29%
    2008 16,07%
    2009 -5,26%
    2010 12,55%
    2011 10,17%
    2012 9,15%
    2013 1,87%
    2014 -2,08%

    • Excellent, thanks! So not enough for a standalone strategy but perhaps a guide when to add to long term positions. I also need to import the data to Amibroker and investigate triggers (e.g. Buy on 3 day low in ‘time window 1’, sell on 3 day high in ‘time window 2’).
      Annual seasonality coming next.

  2. Pingback: Seasonality I: addendum | RRSP Strategy

  3. Pingback: Seasonality II: annual | RRSP Strategy

  4. Pingback: Seasonality roundup: all timeframes | RRSP Strategy

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