In Other Global Markets the "Turn-of-the-Month" Effect Generates Even Bigger Returns than in the US
The "turn-of-the-month" effect is one of the most fascinating stock market phenomena. It describes the fact that price gains primarily tend to occur around the turn of the month. By contrast, the rest of the time around the middle of the month is typically far less profitable for investors.
Good vs. bad seasonal timing... [PT]
The effect has been studied extensively in the US market. In the last issue of Seasonal Insights I have shown a table detailing the extent of the "turn-of-the-month" effect in the eleven largest international stock markets.
The result was that overseas markets also tend to be significantly stronger around the turn of the month than around the middle of the month - in fact, in all countries under review the effect was even more pronounced than in the US.
The following charts show the cumulative returns achieved over time in all eleven countries around the turn of the month (blue lines) and around the middle of the month (red lines).
I have measured the average return of investing in these indexes in the time period from the 26th of each month to the 5th of the subsequent month, i.e., over a period of slightly less than two weeks around the turn of the month. Then I compared this return with that achieved by investing during the rest of the time around the middle of the month, i.e., from the 6th to the 25th of each month.
Canada: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
In Canada the returns of turn-of-the-month period clearly beat those achieved around the middle of the month
China: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
The mid-month period did perform well at times in China, but ultimately scored only in bull market phases
France: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
In France, returns sag rather noticeably in the mid-month period
Germany: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
Germany: The mid-month period return is barely visible on this chart
Hong Kong: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
The mid-month period did outperform at one stage, but it turned out to be a strictly temporary affair
India: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
Returns achieved in the turn-of-the-month period have been leading significantly for years
Japan: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
In Japan the market also delivered a noticeably stronger turn-of-the-month performance - in fact, the long secular bear market was apparently mainly a side-effect of the poor mid-month performance.
Korea: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
It seems as if the mid-month period in South Korea is trying to hide behind the zero line (it is probably ashamed)
Taiwan: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
In Taiwan's stock market the turn-of-the-month period also beats the mid-month period hands-down - only the late 1980s bubble period was a brief exception (Taiwan mimicked the Japanese bubble at the time).
Great Britain: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
The turn-of-the-month period has outperformed steadily in the UK
US: Cumulative return around the turn of the month (blue line) and over the rest of the time (red line), indexed (100)
Funny enough, of all markets the US market exhibits the smallest difference between the returns achieved in the two time periods
Evidently stock market investments all over the world generate significantly larger gains around the turn-of-the-month than around the middle of the month. Clearly the turn-of-the-month-effect is a phenomenon of global relevance.
Another Look at the Details
Below I once again show you a table detailing the returns of the turn-of-the-month period compared to those achieved in the mid-month period in the eleven countries under review.
Turn-of-the-month effect in selected countries
The turn-of-the-month period clearly outperformed the mid-month period in all eleven countries.
The column designated "Diff" shows the excess return of the turn-of-the-month period over the mid-month period. As a glance at this column immediately makes clear, the gains achieved by investing in the turn-of-the-month period are beating those of the mid-month period in all eleven countries, in most cases by quite a significant margin. These excess returns are achieved despite the fact that the time period during which the turn-of-the-month effect occurs is actually slightly shorter (this has implications for risk-adjusted returns).
This is a very simple seasonal pattern. There exist a great many more seasonal patterns, which can be identified with the Seasonax app on Bloomberg and/or Thomson-Reuters. Many of these patterns are still completely unknown - and potentially offer even more substantial outperformance.
Charts by: Seasonax
Chart and image captions by PT, edited by PT
Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix method in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. For in-depth information on the Seasonax app click here (n.b.: subscriptions through Acting Man qualify for a special discount! Details are available on request).