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Andy Li, CFA
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I am a value investor specialized in analyzing small/mid-cap companies and good at identifying under-valued fast growing companies. A believer of value investmenting and a follower of Warren Buffett, Charles Munger, Peter Lynch and John Neff. Andy Li, Ph.D, CFA, FRM is currently an active... More
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  • When labor day approaches, will we see holiday effect again? 0 comments
    Sep 1, 2010 4:22 PM

     

    There are nine holidays each year during which the exchanges are closed. Empirical research suggests that stock prices often behave in a specific manner one day before these holidays. By being aware of this behavior, both long-term investors and short-term traders can benefit.
    The general strategy for short-term traders is to purchase equities one day prior to a holiday and sell just after the holiday. The theory behind this effect is that traders, to avoid any unexpected bad news with market impact, try to unload their holdings before the holidays. Selling pressure drives prices down and makes most stocks become attractive when the holiday ends.
    Based on the S&P 500 Index, the list below shows the results for this strategy over the last 20 years:
    Year
    Buy one day before, sell right after Labor Day
    1990
    0.16%
    1991
    -0.83%
    1992
    0.46%
    1993
    -0.61%
    1994
    0.18%
    1995
    0.95%
    1996
    0.42%
    1997
    3.13%
    1998
    5.09%
    1999
    -0.50%
    2000
    -0.90%
    2001
    -0.06%
    2002
    -4.15%
    2003
    1.39%
    2004
    0.69%
    2005
    1.26%
    2006
    0.17%
    2007
    1.05%
    2008
    -0.41%
    2009
    0.88%
     
    Thirteen out of twenty records show positive returns, and the probability of success in the past 20 years was 65 percent.  As Labor Day approaches, will we see history repeat itself?


    Disclosure: No holdings of SPY
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