"A time-tested strategy that calls for investors to 'sell in May and go away' might sound awfully tempting this year.I have to admit that calendar anomalies always annoy me. They have to be mere random coincidences, right? They make no sense given everyone has a calendar and are therefore predictable. Thus, even if they were found through rigorous data mining to exist, they should instantly go away as soon as announced.
...Simplistic as it sounds, the approach has produced reliable results with reduced risk for decades. Since 1950, the Dow Jones industrial average has produced an average gain of 7.3 percent from November through April versus a scant 0.1 percent from May through October."
And yet they seemingly continue to exist. Indeed there is an academic controversy on this. To wit, in 2001 Jaceobsen and Bouman document the anomaly internationally:
"The 'Sell in May' effect tends to be particularly strong in European countries and is robust over time. Sample evidence, for instance, shows that in the UK the effect has been noticeable since 1694. While we have examined a number of possible explanations, none of these appears to convincingly explain the puzzle. "But then in 2004, I thought had been Maberly and Piercet explained it away using dummy variables for outliers (LTCM and October 1987), but then again in 2005 Jacobsen, Mamun, and Visaltanachoti examine it (this time looking at individual stocks as opposed to indicies) and found it still lived on:
"We study the interaction between this anomaly - known as the Halloween effect - and the January effect and other well-known anomalous findings on portfolios formed on Size, Dividend Yield, Book to Market ratios, Earnings Price ratios and Cash Flow Price ratios in equally but also value weighted portfolios for the US market. Our main findings are that contrary to the January effect, the Halloween effect seems a market wide phenomenon unrelated to these well-known anomalies. All portfolios in our study show higher average winter returns than summer returns. In most portfolios this difference is statistically and economically significant."