What is the Stock Market Calendar Effect?

The Calendar Effect, as it applies to the stock market, is a collection of theories that seek to explain dramatic price changes in market indexes based on certain days, months, or times of the year. The term is sometimes also applied to multi-year effects, such as the U.S. Presidential cycle. While many of these theories lack statistical evidence to support them, some investors do believe they can offer strategic guidance.

A list of the primary calendar effects often includes:

January Effect: According to the January Effect, investors can expect to see a general increase in stock prices right after the holiday season and throughout the month of January. The January Effect is often attributed to a correction that follows tax-driven year-end sell offs.

October Effect: Some stock market investors operate under the expectation that the market tends to underperform in the month of October. While historical evidence does support this theory to some degree, the effect is not as dramatic as many people have come to believe. The October Effect is underscored by the fact that some of the most significant stock market declines and crashes have occurred in October.

Monday Effect: The Monday Effect is the theory that the market will continue along its same path from the previous Friday. If the market was up on Friday, that trend should continue on Monday. There is significant data that helps support this theory.

Presidential Election Cycle: According to this theory, the market is weakest in the first year following a U.S. presidential election. Market performance is then said to approve until the cycle begins again in the next election year.
_______________________________________________________________

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

« Calculate and Interpret the Return on Sales Ratio | Home | A Present Value Interest Factor Calculator »