Calendar Effect Definition

If you read the financial pages for any period of time, a sense of déjà vu is inevitable. As one

year turns into the next, the same features recur. In particular, you may have noticed articles

discussing so-called "calendar effects". These hold out the promise of beating the market by

making well-timed exits from (and entrances to) shares based on established historical patterns.

But do such short cuts to investment outperformance really exist? Can a desk diary hope to

replace the ubiquitous Bloomberg terminal as the canny investor's analytical tool of choice?

As late April shades into early May, news editors are no doubt busy commissioning articles reminding investors of the old injunction to "sell in May and go away, don't come back until St. Leger's Day". This old saw rests on historical data suggesting that returns from the stock market between October and April tend to be impressive, while those between May and September are often underwhelming. (For those of you who choose not to follow such things, the St Leger Stakes are run at Doncaster each September and apply a full stop to the flat-racing season and, by extension, the British

summer.) The explanation given for this pattern is that investors tend to be away from their desks during the summer months, leaving fewer buyers to bid up share prices.

After a strong run in markets since last September (the FTSE 100 is up by more than 8% since last St Leger's Day), the temptation to lock in profits this May will no doubt be strong. Sadly, while the "sell-in-May" axiom is nice in theory, it doesn't work quite so well in practice; history doesn't always repeat itself. To take just one recent example, the UK market rose by 22% in 2009. Within that, however, it rose by 21% between May and September. In that instance, following a seasonal trading strategy would have deprived you of much of the market's post-crisis recovery.

But "sell in May" isn't the only chestnut you'll find doing the rounds. For example, some data seem to suggest that Monday is the worst day of the week for equity returns; if that's the case, committing your life savings to the stock market when the opening bell sounds on a Monday morning might not be a good idea.

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