FTSE 100 quarterly review announcement date changes

The FTSE 100 quarterly reviews are implemented at the close on the third Friday of the four months: March, June, September and December.

The announcement date for the review changes used to be the Wednesday after the first Friday of the month.

From March 2014 this has changed: the announcement date is now 12 business days before the implementation date.

According to the LSE the change has been made to “provide clients a longer notice period to prepare for the trades involved following each review”.


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Average market behaviour in March

The following chart plots the average performance of the FTSE 100 Index during March since 1984 (more info on this type of chart).

Average month chart - March (2014)As can be seen, historically the market has generally risen gently for the first three weeks of March, and then fallen back a little in the final week and a half.

February 2014

The following chart shows the average performance of the market in February (1984-2013) and overlays the actual performance in February 2014.

Average month chart - February overlay February 2014 (2014)

In February 2014 the big difference from the average February was the big bounce back in share prices after the weak January.

 

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First trading day of March

Next Monday will be the first trading day (FTD) of March.

As explained in the 2014 edition of the Almanac, the market has a tendency to be strong on the FTD of a month. And this effect has been even more pronounced in recent years.

Since 1984, the FTSE 100 Index has a return average of 0% on the March FTD, which makes it the second weakest FTD of the year. However, as can be seen from the chart, the average performance is greatly influenced by the fall of over 5% on the March FTD in 2009.

The following chart shows the returns for every March FTD since 1984.

FTSE 100 first trading day of March (1984-2013)

 

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Last trading day of February

Tomorrow will be the last trading day (LTD) of February.

As explained in the 2014 edition of the Almanac the LTDs of months used to be stronger than average, but in recent years they have been weak. This can clearly be seen in the case of February from the chart below. From 1984 to 1994 the FTSE 100 only fell twice on the last trading of February; but in the last ten years the index has only risen twice on the February LTD.

Since 1984 the index average return on the February LTD has been -0.07% (one of only three months with a negative LTD average return). Since 2000, the index average return on this day is even worse at -0.32%

The following chart shows the FTSE 100 Index returns for every February LTD since 1984.

FTSE 100 last trading day of February (1984-2013)

 

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History of companies joining and leaving the FTSE 100 Index since 1984

To keep the FTSE 100 Index up to date and in accordance with its purpose, the constituents of the index are periodically reviewed. For example, companies can fall out of the index when their market capitalisation falls below a certain level, and they will be replaced by companies with a higher market cap. Changes can also be made as a result of M&A activity. Very roughly, following each review on average two companies leave the index and are replaced by two new ones.

The reviews take place in March, June, September and December. The reviews are implemented at the close of the third Friday of the month and take effect the following Monday. The review decisions are announced 12 business days before the implementation date. (Note: the date of announcements was changed from March 2014.)

The following table lists the entry and exit dates for each company that has joined or left the FTSE 100 Index since 1984. For example, if you want to know what years Jaguar was in the FTSE 100, this is where to look.

Note: Company names do change over time and therefore companies may appear more than once in the table. But care has been taken to minimise this as much as possible.

 


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US holidays and European markets

Summary

European stock markets tend to have positive and high returns on days when the NYSE is closed. The effect is significant when the previous day’s return on the NYSE has been positive.

Brief overview

The US has six holidays every year that are not holidays in Europe:

  • Martin Luther King Day (the third Monday in January)
  • President’s Day (the third Monday in February)
  • Memorial Day (last Monday in May)
  • Independence Day (the fourth of July)
  • Labour Day (the first Monday in September)
  • Thanksgiving day (the fourth Thursday in November)

How do the European equity markets  behave on these days when the US markets are closed?

This was the question asked by the authors of an academic paper (Casado, Muga and Santamaria, 2011).

The authors analysed open and close values for the CAC40, DAX, FTSE 100, IBEX35 and EUROSTOXX50 (for the euro-zone stock market)  for the period 1991-2008. Their results were remarkable.

Their research found the average daily returns for the European markets when the US market was closed was 0.32%, which was 15 times greater than the daily returns on all days.The greatest (NYSE-closed) daily returns were 0.42% for the German market.

Interestingly they found similar results for the open to close data on the NYSE-closed days. Meaning that the information from the previous day’s US market had been fully absorbed at the market open, and the effect is attributable to European trading.

Because the effect is so great it has a clear economic significance as it is possible to obtain significant returns after deducting trading costs by trading index futures.

The following figure from the paper shows the result of systematically buying FTSE 100 futures at the open on a NYSE-closed day and where the previous day’s NYSE return was positive, and then closing the position at the close on the same day. The red line is the equity chart for the strategy (left axis), and blue line the FTSE 100 Index (right axis).

Casado_The effect of US holidays on the European marketsThe strategy had positive returns in both bull and bear periods for the market.

Reference

Casado, Jorge and Muga, Luis and Santamaria, Rafael, The Effect of US Holidays on the European Markets: When the Cat’s Away (2011)

 

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Average market behaviour in February

The following chart plots the average performance of the FTSE 100 Index during February since 1984 (more info on this type of chart).

FTSE 100 average month chart for February [1985-2013]As can be seen, historically the market has generally risen for the first two and a half weeks of February, and then fallen back a little in the final week and a half.

January 2014

The following chart shows the average performance of the market in January (1984-2013) and overlays the actual performance in January 2014.

FTSE 100 average month chart for January [1985-2013]

In January 2014 the big difference from the average January was the big share sell-off in the final week and a half.

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First trading day of February

Next Monday will be the first trading day (FTD) of February.

As explained in the 2014 edition of the Almanac, the market has a tendency to be strong on the FTD of a month. And this effect has been even more pronounced in recent years. This can be seen clearly in the chart below.

Since 1984, the FTSE 100 Index has risen on average 0.61% on the February FTD – this is 20 times the average return on all days of 0.03%. This makes it the strongest month FTD of the year. There have been positive returns on the February FTD in 59% of years.

Since 2000, the performance has been even stronger on the February FTD, with an average return of 0.93% and positive returns in 11 of the past 14 years – which make it still the strongest month FTD of the year.

The following chart shows the returns for every February FTD since 1984.

FTSE 100 First trading day February (1984-2013) [2014]

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Last trading day of January

Tomorrow will be the last trading day (LTD) of January.

As explained in the 2014 edition of the Almanac the LTDs of months used to be stronger than average, but in recent years they have been weak.This can clearly be seen in the case of January from the chart below. From 1984 to 1999 the FTSE 100 only fell twice on the last trading of January. But since year 2000 the market fallen more often than risen on this day.

Since 1984 the market has on average risen 0.19% on the LTD of January, with positive returns in 62% of all years, which makes the January LTD the third strongest month LTD in the year. However, as indicated above, things have changed since 2000: the average LTD return in January has been -0.17% making it the third weakest month LTD in the year.

The following chart shows the FTSE 100 Index returns for every January LTD since 1984.

FTSE 100 Last Trading Day January (1984-2013) [2014]

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Holidays and the market

An academic paper (Ariel, 1990) was published with the finding that the trading day prior to holidays in the US market had an average return 14 times greater than the average for the other days in the year. This, and other papers, found that the day immediately before holidays had the highest returns (in the period around holidays), with the third day before the holidays having the next highest return and the day following the holiday having negative returns.

More recently this was updated in a paper (Ziemba and Dzahabarov, 2011) that found that the holiday effect had diminished in the 1990s and 2000s and that the out-performance was occurring largely in just the third day before holidays.

Does such a holiday effect exist in the UK market?

The following charts show the results of analysis of the daily returns of the FTSE 100 Index around holidays. The days studied were the four trading days immediately prior to holidays, H(-4) to H(-1), and the three trading days after holidays, H(+1) to H(+3). A holiday was defined as a 3-day (or longer) period with no trading.

1984-2013

The following chart shows the average returns for the seven trading days around holidays for the period 1984-2013.

Holiday effect FTSE 100 average returns [1984-2013]We can see that, as with the US studies, H(-3) and H(-1) were strong during the holiday periods. Although, unlike the US studies, the day after a holiday, H(+1), was also found to be strong – this day has an average return of 0.17% (six times greater than the average return for all days in the year).

The following chart shows the proportion of positive returns for the same period.

Holiday effect FTSE 100 positive returns [1984-2013]The profile is broadly similar to that for the average returns: H(-1) and H(-3) are strong, as is H(+1). The weakest day around holidays has been H(+3)  – the only day with a negative return and proportion of positive returns under 50%.

2000-2013

To look at the persistency of these results, the following charts restrict the study to the more recent period 2000-2013.

Holiday effect FTSE 100 average returns [2000-2013]Holiday effect FTSE 100 positive returns [2000-2013]

It can be seen that the UK holiday effect has changed slightly in recent years.H(-1) is still relatively strong, H(-3) less so, but the main change has been the relative strength of H(+1).

References for the holiday effect

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