The Turn-of-the-Month Effect in Equity Index Returns

Summary

The document describes a calendar anomaly in which equity returns have historically been concentrated around the month boundary. The interval runs from the final trading day of one month through the third trading day of the next. A basic implementation buys an S&P 500 ETF shortly before month-end and sells at the close on the third trading day of the new month; the page notes that some studies use an earlier entry. Research cited for 1987–2005 found that essentially all excess market return occurred during this four-day interval, echoing earlier findings for 1897–1986.

The effect has also been reported across markets and in stocks beyond small-cap or low-priced shares. The reviewed explanations remain unsettled: standard return volatility, year-end timing, quarter-ends, and monthly interest-rate changes do not account for it, while cash-flow timing and portfolio rebalancing are proposed possibilities. The page warns that calendar effects can fade or shift, and the strategy remains exposed to equity risk. Historical statistical significance alone does not establish future performance or account for trading costs.

Key ideas

• The turn-of-the-month interval spans the final trading day of a month and the next three trading days.
• A basic strategy buys an S&P 500 ETF before month-end and exits at the close of the third trading day of the new month.
• Cited studies report that the interval captured nearly all excess market returns in their historical samples.
• The effect was reported beyond small-cap stocks, year-end periods, quarter-ends, and the U.S. market.
• Its cause remains unresolved, and calendar patterns can weaken or shift over time.

Tags

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