Most human activities have seasonal cycles. The stock market’s seasonal cycle is not reliable every year, but it is powerful over the long term.

You probably have already heard of its four best-known effects:

1. Sell in May and Go Away. This old saying tells that the odds are against you from May until October.
2. Halloween Effect. The odds are favorable again in November.
3. Santa Claus Rally. December is usually a good month.
4. January Effect. It is a small cap rally in January.

Globally, it is said that all the positive return of the stock market is done during the 6-month period from the 1st of November to the 30th of April, and that it’s better to be out of the market from the 1st of May to the 31st of October. But is this just a Wall Street legend or does it really work?

Many research articles have been published on the subject, generally with partial data and unconvincing explanations. Until recently there was no exhaustive study to prove that one of the best quantitative indicator s might be the calendar.

Late in 2012, Ben Jacobsen and Cherry Y. Zhang from Massey University (New Zealand) wrote two unbelievable articles: Are Monthly Seasonal Real? A Three Century Perspective (74 pages) and The Halloween Indicator: Everywhere and all the time (55 pages). This is the lethal weapon against skepticism. Compiling available data since 1693 in 108 countries, they claim that not only the discrepancy between Summer and Winter is as old as stock data, but that it can be observed worldwide and has increased in the last decades. I think that these academic papers are a must read for anyone seriously involved at any level in the stock market. At the time these lines were written, both of them are available on the Social Science Research Network website (SSRN eLibrary). I will borrow their global results here, in-depth statistics can be found in the original articles.

The following table shows monthly average returns in percentage s from different sources. The first column is a summary of the most important numbers in Jacobsen & Zhang’s papers, the second and the third ones are drawn from online data sources, the fourth one gives results obtained by my own simulations. Like Jacobsen, I call Winter the 6 months from November to April and Summer the 6 months from May to October.

Average Return %