Stock Market Anomalies: The Halloween Effect

October is here and with it brings spooky ghosts, children begging for candy, and the wave of historically positively performing stocks for you to panic buy. Yes, the Halloween Effect is upon us and it’s time for you to dust off your cobwebs from your fear of the September effect.

If you don’t understand what we’re going on about, then you’ve probably never heard of the Halloween Effect. The Halloween effect is a stock market anomaly closely tied to the old “Sell In May and Go Away” that’s been around long before the United States even existed (back when wigs were the fashion trend).

The strategy behind “Sell In May and Go Away” is to wipe your hands of your positions and walk away until October’s Halloween Effect. The Halloween Effect is when, in theory, stocks do better from the end of October to the next May, but what exactly causes the theory?

There’s no conclusive explanation that explains the Halloween Effect. One of the major working theories is that investors try to avoid the risk of the Summer slumps caused by others selling in May and then walking off to their Summer vacations. However, there’s no doubting how historically-stable the Halloween Effect has been.

Returns between the months of November and April are much higher than that of May and through October. Out of the many sovereign nations that do have a stock market, over eighty of them have evidenced promising returns between the winter months and May.

While everyone is racking their head trying to figure out the “why” of the Halloween effect, others just go with the trend because it’s one of the most basic investing anomalies to follow. It’s as simple as just picking up stocks at the end of October and then fearing the month of May like the plague.

Maybe we should move Halloween to May since it’s the real scary month of the year (for investors).
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