Calendar-Month Return Persistence in Stock Portfolios

Summary

The document describes a cross-sectional seasonal effect: stocks that performed well in a particular calendar month tend to outperform again in that same month in later years. January is reported as the strongest month, but the pattern is said to extend across the calendar. The proposed strategy ranks stocks by their return in the corresponding month one year earlier, then holds the winner decile long and the loser decile short. It uses equal weighting, monthly rebalancing, and the largest 30% of NYSE and AMEX firms by market capitalization.

The cited research reports seasonal expected-return differences across all months and describes international evidence, including persistence across multiple countries. Proposed explanations include seasonal liquidity, systematic risk, and investor behavior. The page does not provide a complete performance evaluation for the described implementation. It also says the strategy’s relationship to broad equity risk is unknown, so its usefulness as a crisis hedge or diversifier is unestablished; the long leg may remain market-sensitive, and the short leg requires separate testing.

Key ideas

• Stocks with high returns in a given calendar month have tended to outperform again in that month in later years.
• The effect is described across the calendar, with January reported as particularly strong.
• The strategy ranks large NYSE and AMEX stocks by returns in the matching month one year earlier.
• It buys the winner decile and shorts the loser decile in an equally weighted portfolio rebalanced monthly.
• Possible explanations include liquidity seasonality, compensation for risk, and investor behavior.
• The source does not establish the strategy’s equity-market correlation or crisis-hedging value.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.