One Of The Most Striking Equity Market Anomalies Explained | Zero Hedge

It is surprising how little attention academic literature has devoted to understand equity market returns around the turn of the month, despite the observations of Lakonishok and Smidt (1988) and McConnell and Xu (2008) among others that most of the returns accrue during a four-day period, from the last trading day to the third trading day of the month.

We find that the market returns are abnormally high also on the three days before the turn of the month.

In fact, combining the two observations, we find that since 1926, one could have held the S&P 500 index for only seven business days a month and pocketed almost the entire market return with forty percent lower volatility compared to a buy and hold strategy.

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Nice post. Thanks for sharing such an information. Have you ever did a backtesting for this stategy in indian markets. I think its effects in indian markets will be minimal as only a small %ge of our our pension funds is getting invested in equities. Its percentage can increase in coming years. any way I am going to have a backtesting done for indian equities.I plan to look the stocks which has got the top mutual fund holdings. I expect, if at all pension funds are investing in equities, that will be in safe large cap stocks. So I think the backtesting can be restricted to such stocks. Meanwhile if you have done any backtesing please share details.

Hi Joseph,

Haven’t done any backtesting, but i think as interest rates are coming down and with Indian economy formalising to a certain extent more and more savings and investments will flow into equity from various channels which could result in this strategy bearing fruit.

Don’t have bandwidth currently to test it out, though other boarders would find it interesting and could backtest it if they want :slight_smile: