Most people are probably aware of the saying "Sell in May and go away". This popular seasonal Wall Street truism implies that the market's performance is far worse in the six summer months than in the six winter months.
Numerous studies have been undertaken particularly with respect to US stock markets, which confirm the relative weakness of the stock market in the summer.
So what is the status of the "sell in May" rule in other countries though?
Seasonmax examined the benchmark stock indexes of the countries with the largest market capitalization from 1970 onward, or starting from the earliest year as of which continuous price data are available.
The charts below show the chained stock market performance in nine countries during the summer months in red, during the winter months in green as well as the full year returns (=actual performance of the index) in blue.
Note: the charts are linearly scaled, as a result of which the performance patterns of the summer and winter half-year periods visually don't appear to add up to the full year performance.
Canada: Summer Half-Year vs. Winter Half-Year
The winter half-year even beats the full year!
China: Summer Half-Year vs. Winter Half-Year
Prices rise almost as strongly in the winter months as over the full year
France: Summer Half-Year vs. Winter Half-Year
The winter half-year beats the full year significantly!
Germany: Summer Half-Year vs. Winter Half-Year
Once again the winter half-year clearly beats even the year as a whole!
Japan: Summer Half-Year vs. Winter Half-Year
If one employs the "sell in May" strategy, even Japan is in a long term bull market
Korea: Summer Half-Year vs. Winter Half-Year
During the winter prices rise almost as much as over the year as a whole
Taiwan: Summer Half-Year vs. Winter Half-Year
In Taiwan the summer half-year is deeply in the red
United Kingdom: Summer Half-Year vs. Winter Half-Year
It suffices to be invested during the winter months
US: Summer Half-Year vs. Winter Half-Year
The winter half-year beats the summer half-year, but not the full year
In all of the markets shown here it was sensible to sell in early May - as the markets either posted losses or gains of less than one percent in the summer months in these countries. Investing in these markets during the summer was barely worth it: After all, by employing the "sell in May" strategy, one is also exposed to less risk because one is only invested half of the time.
Detailed Results By Country
The following table shows the half-year results of the eleven countries in detail. Half-year periods in which it was profitable to be invested on a risk-adjusted basis are highlighted in green. Half-year periods that generated losses are highlighted in red.
Overview Of Country Selection: Half-Year Results
Investing during the summer period was not profitable for traders. The table underscores that the summer weakness (a.k.a. the "Halloween Effect") does indeed exist. Although it is a very simple and well-known rule, the pattern still works.
Apparently a far too small number of investors is actually taking action based on their knowledge of the pattern and there is almost no arbitrage activity either. The stability and persistence of the pattern suggests that "sell in May" will continue to work in the future.
Sometimes the simple rules are the best!
Contribution sources: Gold Eagle & Season Max
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.