Sell-in-May Effect Appears Real

Joachim Klement, a trustee of the CFA Institute Research Foundation, concludes in The Enterprising Investor that the “sell-in-May effect” (also known as the “Halloween indicator”) “seems real and persistent.” As Klement explains, this well-known calendar effect “holds that investors can outperform a simple buy-and-hold strategy by selling stocks at the beginning of May and buying them back at the beginning of  November.” Sven Bouman and Ben Jacobson found that for the period January 1970 to August 1987, “the sell-in-May effect was present in 35 out of 37 countries and was statistically significant in 20 of them.” Although the effect has since been challenged, and efficient market theory suggests the effect should not persist or is uneven across time, Klement notes that a 2013 paper in Financial Analysts Journal “found that in the 14 years since the publication of Bouman and Jacobsen’s original analysis, the indicator did not disappear.” Further, “across the 37 markets studied, the outperformance in the winter months was still about 10 percentage points higher than in the summer months” and “exists in three out of four years and does not depend on specific industries, countries, or months.” The cause, Klement says, “is totally unknown,” but “it does seem like a true investment anomaly.”