Calendar effect

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A calendar effect (or calendar anomaly) is the difference in behavior of a system that is related to the calendar such as the day of the week, time of the month, time of the year, time within the U.S. presidential cycle, or decade within the century. It is most often used in a financial context to describe a market anomaly; traders may use market timing to profit from moves in stock prices based on the calendar. [1]

Contents

Examples

Stock market

Other

Causes

Market prices are often subject to seasonal tendencies because the availability and demand for an item is not constant throughout the year. For example, natural gas prices often rise in the winter because that commodity is in demand as a heating fuel. In the summer, when the demand for heat is lower, prices typically fall. [4] Transactions and prices for housing are higher in the summer than in the winter. [5]

A 2018 study in the Eurozone concluded that calendar effects are not abnormal, citing the increase in market values around the end of the month, when employees are paid. [6]

Arguments that calendar effects do not exist or are not significant

According to the efficient-market hypothesis, the calendar anomalies should not exist because the existence of these anomalies should be already incorporated in the prices of securities. [7]

A study published in 2001 argued that there is no statistically significant evidence for calendar effects in the stock market, and that all such patterns are the result of data dredging. [8] However, there are contradictory findings and there is an ongoing debate on behavioral economics versus rational choice theory.

According to a study published in 2015, calendar affects are a result of financial trends and the business cycle, which affects investor psychology. [9]

References

  1. ↑ "September Is Just a Month". September 2, 2013.
  2. ↑ Singal, Vijay (2003). "The Weekend Effect". Beyond the Random Walk. pp. 40–55. doi:10.1093/oso/9780195158670.003.0003. ISBN   978-0-19-515867-0.
  3. ↑ Grebe, Leonard; Schiereck, Dirk (December 2024). "Day-of-the-week effect: a meta-analysis". Eurasian Economic Review. 14 (4): 1057–1094. doi:10.1007/s40822-024-00293-9.
  4. ↑ Ewald, Christian-Oliver; Haugom, Erik; Lien, Gudbrand; Størdal, Ståle; Wu, Yuexiang (November 2022). "Trading time seasonality in commodity futures: An opportunity for arbitrage in the natural gas and crude oil markets?". Energy Economics. 115 106324. Bibcode:2022EneEc.11506324E. doi:10.1016/j.eneco.2022.106324.
  5. ↑ Evangelou, Nadia (January 2, 2019). "Seasonality in the Housing Market". National Association of Realtors .
  6. ↑ Vasileiou, Evangelos (April 2018). "Is the turn of the month effect an 'abnormal normality'? Controversial findings, new patterns and…hidden signs(?)". Research in International Business and Finance. 44: 153–175. doi:10.1016/j.ribaf.2017.07.057.
  7. ↑ Schwert, G. William (2003). "Chapter 15 Anomalies and market efficiency". Financial Markets and Asset Pricing. Handbook of the Economics of Finance. Vol. 1. pp. 939–974. doi:10.1016/S1574-0102(03)01024-0. ISBN   978-0-444-51363-2.
  8. ↑ Sullivan, Ryan; Timmermann, Allan; White, Halbert (November 2001). "Dangers of data mining: The case of calendar effects in stock returns". Journal of Econometrics. 105 (1): 249–286. doi:10.1016/S0304-4076(01)00077-X.
  9. ↑ Vasileiou, Evangelos (2015). "Long Live Day of the Week Patterns and the Financial Trends' Role. Evidence from the Greek Stock Market during the Euro Era (2002-12)". Investment Management and Financial Innovations. 12 (3). doi: 10.2139/ssrn.2338430 . ISSN   1556-5068. S2CID   154992237. SSRN   2338430.
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