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:

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).

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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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.

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