Equity Returns at The Turn of The Month: Trading Strategies and Implications for Investors and Managers

John J. McConnell;

RELATED

Related Papers     Patents    Grants    Venues    Experts    Cite    Share    Save

ABSTRACT

We propose to extend and complete the attached study of the "turn-of-the-month" effect in equity returns in two ways. First, we propose to study whether the effect is more pronounced among certain industries where industries are determined by SIC codes and/or the Fama-French industry classifications and/or whether the effect is more pronounced in certain time periods especially periods of 'high' investor sentiment. Second, we propose to investigate whether the effect can be used to generate a profitable trading strategy after trading costs. This latter investigation will examine three low cost strategies: 1. a strategy of switching between an equity fund and a bond fund of the same mutual fund family; 2. a strategy of buying and selling exchange traded funds (ETFs), either specific styles of ETFs or market-based ETFs; and 3. a strategy of buying and selling equity index futures. We propose to consider the implications of these for fund managers especially funds that might be exposed to being "picked off" by a turn-of-the-month trading strategy. The turn-of-the-month effect in U.S. equity returns was initially identified by Ariel (1987), who studies CRSP market returns over the period 1963-1982, and Lakonishok and Smidt (LS whereas over the other 16 trading days, it is -0.001%. When our results are combined with those of LS it is not concentrated at calendar year-ends or quarter-ends; and it is not confined to the US: of the 34 countries we study, the effect occurs in 30 of them. Further the effect is not due to risk as measured by standard deviation of returns. Finally, we find that the effect is not due to increased buying pressure measured by trading volume and net flows to mutual funds. We propose to extend and complete this study as described above.

 Paraphrase     Questionfy     Wikify     Simplify     Summarize