Bi-annual seasonality

There is a marked difference in characteristics between even and odd years.  To illustrate, plotting 30 years of monthly returns from Ken French’s small value portfolio against a 24 month index:

SV-bi-ann

Poor performance in even years (months 1-12) starts earlier and lasts longer.  The trendline exhibits a much narrower and later trough in odd years (months 13-24).

Mkt-bi-seas

The market return, in excess of the risk-free rate, is plotted in blue.  Excluding months 4-7 in even years, 8-10 in odd years and St. Louis Fed Recessions (brown) produces the red equity curve.  Annual excess return is 10.2% with negligible drawdown (i.e. big losses typically occur in certain months).

Note that we are in currently in month 5 of an even year.

In the next post I will investigate the sensitivity of this simple approach to parameter changes.

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5 thoughts on “Bi-annual seasonality

  1. Sweet! Is the calendar effect homogeneous across all factors? I remember/guess momentum being/to be more vulnerable and value more resilient?! How about size?

    • This will be covered in the next 2 posts. Momentum performance is a little higher but more volatile. Due to the negative correlation between value and momentum, a combination is probably best as per Asness.

  2. Pingback: Daily Wrap for 5/15/2014 | The Whole Street

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

  4. Pingback: Seasonality debunked (partially) | RRSP Strategy

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