Jan-Nov-Dec market returns

Does the performance of the stock market January-November have an influence on the market returns in December?

For example, if the market performs strongly over the period January-November do shares tend to continue to be strong in the final month? Or perhaps they fall in reaction to it?

The following chart plots the January-November returns against the December returns in the same year for the FTSE All-Share index for the period 1970-2012.

Performance of FTSE All-Share Index Jan-Nov v Dec for 1970-2012There is a positive correlation here: in other words, when the market rises Jan-Nov, it tends to continue to be strong in the final month.

From the equation for the line of best fit we can calculate the forecast index return in December 2013 based on the Jan-Nov return of 14.7% seen this year. The forecast return for his December is 2.2%.

However, the R2 (a measure of correlation strength) is very low; it can be clearly seen in the chart that the data points are not closely clustered around the line of best fit. So, unfortunately, we can not have much confidence in the forecasting power of the line of best fit.

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