I have been off the grid travelling in Europe, Asia and Africa, but I am now back to new highs and trading floors extending more "high fives" than I have seen since 2000!!
The weather is horrible but finally over the last few days early spring has arrived in Denmark, which reminded me of the time of year, May, and of the often discussed concept of the "Halloween Indicator" or more commonly known as: "Sell in May and go away"
The principle being that the strategy says there is excess return during winter: November – April and the opposite during summer: May – October.The best known paper analyzing this is a 2002 paper by Sven Bouman and Ben Jacobsen in The American Economic Review, vol. 92, No. 5 (December 2002)
The paper found that winter return are significantly higher than during summer in 36 out of 37 countries!
There is now a newer paper examined this in broader and deeper context: The Halloween Indicator, "Sell in May and go Away": An even bigger puzzle – by Ben Jacobsen & Cherry Y. Zhang (2012) which again find the strategy works: They conclude that a "sell in May" trading strategy beats the market more than 90% of the time for horizons over 10 years, with a return on average three times higher than the market.
This may seem an odd timing considering that the Q1 profit is the best on recent record, but…. Earnings is a lagging indicator, never the less it has been gratifying to see our believe in Europe and European listed companies has been paid back:
Earning surprises relative to history: State Street Research
The big problem remains the same: My good Nine-month credit rule – that credit impulse leads economy (and earnings by nine month) – which is other words means that the great performance in Q1-2017 was originated nine month ago by credit action. What did happen in Q2 and Q3 2016?
This is not "money machine" but despite trying to shoot down this concept, this paper and the one before confirms that there is SEASONALITY which seems tradeable:
I close by quoting from conclusion:
"….When considering trading strategies assuming different investment horizons, the UK evidence reveals that investors with a long horizon would have remarkable odds of beating the market, with, for examples, an investment horizon of 5 years, the chance that the Halloween strategy outperforms the buy and hold is 80%, with a probability of beating the market increasing to 90%, if we expand horizon to 10 years"…
Who does not want those odds?
Safe travels,
Med venlig hilsen | Best regards
Steen Jakobsen | Chief Investment Officer
Saxo Bank A/S | Philip Heymans Allé 15 | DK-2900 Hellerup
Phone: +45 39 77 40 00 | Direct: +45 39 77 62 23 | Mobile: +45 51 54 50 00
Research: http://www.tradingfloor.com/traders/steen-jakobsen
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