Market returns in odd and even weeks

A couple of years ago the Almanac wrote about a strange characteristic of the UK equity market which was the difference in performance in odd and even weeks. The original article is here (see the original article for the definition of odd/even weeks etc.) To recap briefly, the FTSE 100 Index saw much stronger returns in odd weeks than even weeks.

Let’s see what’s happened recently and if this strange characteristic still exists. 

The following chart shows the FTSE 100 average returns for odd and even weeks for the period 2010 to 2017, and also for the individual years 2016 and 2017 (to date). 

Average FTSE 100 returns in odd and even weeks

As can be seen, for the period from 2010 the FTSE 100 has seen on average positive returns in odd weeks and negative returns in even weeks. In effect, for the last few years in aggregate all the growth in the index has been due to its performance in odd weeks.

In 2016, the market on average did see positive returns in even weeks (albeit still less than the odd-week returns). But so far in 2017 the longer-term trend has reasserted itself, with strong odd-week returns and negative even-week returns.

The following chart updates the performance of two hypothetical portfolios: one of which only invests in the market in odd weeks, and the other only invests in even weeks.

Odd v Even Week FTSE 100 Portfolios [2010-2017]

The significant divergence in performance previously observed has continued to today. Having started with values of 100 in 2010, by November 2017 the Odd Week Portfolio would have had a value of 187, compared with a value of 75 for the Even Week Portfolio. The change in value of the Even Week Portfolio has changed little from 2015, whereas the Odd Week Portfolio has grown strongly.

As mentioned in the original article, there is no obvious reason for this weekly phenomenon, although such weekly effects have been seen elsewhere – for example, the FOMC Cycle.

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FOMC Cycle

According to a 2014 paper a strategy that bought the S&P 500 in the even weeks after FOMC announcements and sold in the odd weeks, would have seen a 650% return since 1994, against a market return of 505% for the period. The opposite strategy (i.e. buying in odd weeks) would have had negative returns.

The following chart comes from the WSJ reporting on the findings in the paper.

Even vs Odd Weeks [WSJ]

And this effect does not seem limited to the US market. The following chart, taken from the original paper, shows the international returns over the FOMC cycle. Where, WI is the world index, DMxUS is the developed market index excluding US, EM is the emerging market index. All indices are in USD.

International stock returns over the FOMC cycle [Vissing-Jorgensen]

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Market returns in odd and even weeks

This is a strange one. 

The following chart shows the value of two portfolios:

  • Odd Week Portfolio: this portfolio only invests in the FTSE 100 in odd-numbered weeks, and is in cash for the even-numbered weeks.
  • Even Week Portfolio: this portfolio only invests in the FTSE 100 in even-numbered weeks, and is in cash for the odd-numbered weeks.

The portfolios started investing at the beginning of 2010 with values of 100.

The weeks are numbered according to the ISO 8601 numbering system, whereby the week containing the first Thursday of the year is designated the first week of the year (this is also called the European week numbering system).

Odd v Even Week FTSE 100 Portfolios [2010-2015]

The divergence  in performance in the two portfolios is quite striking. By the end of November 2015 the Odd Week Portfolio would have had a value of 155, and the Even Week Portfolio a value of 74. And, as can be seen, the divergence has increased significantly in the last few months (since August 2015).

It may not be possible to exploit this phenomenon due to trading costs, but it is certainly rather bizarre.

Has this been a long-term phenomenon?

Odd v Even by decade

The following chart shows the FTSE 100 average returns for odd and even weeks for the past few decades. For example, from 1984-1989 the average return in odd weeks was 0.19% and for even weeks 0.41%,

Average FTSE 100 returns in odd and even weeks by decadeAs can seen, there has been no consistent relationship between odd and even week returns. In the decade 2000-2009, even weeks were on average stronger than odd weeks, whereas this decade the relationship has reversed – and, as mentioned above, for the moment the divergence is increasing.

While there is no obvious (or, for the moment, non-obvious) explanation for this weekly phenomenon, such weekly effects have been seen elsewhere – for example, the FOMC Cycle.

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Weekly market returns and volatility

Previously we’ve looked at the daily volatility of the FTSE 100 Index (here and here), in this article we will look at the average weekly returns and volatility of the Index.

Since 1984, when the FTSE 100 Index was introduced, the mean weekly return of the index has been 0.13%. In other words, when the index is at the 6000 level, the average change in the index in a week has been 8.1 points. However, this single figure masks how the mean return of the index has changed by decade – this is shown in the following chart.

Weekly mean returns of the FTSE 100 Index by decade

In the 1980s the mean weekly return was 0.29%, which then fell to 0.22% the following decade (which marked the end of the 20-year asset boom). In the 2000s, the mean weekly return fell to a negative -0.01, and so far this current decade the mean has been 0.08%.

Although the current decade’s mean weekly return has been 0.08%, the standard deviation is 2.1 (standard deviation is a common way of measuring volatility). This means that with the index at the 6000 level, for 32% of weeks the weekly change has been greater than -122pts or +131pts.

How has this weekly volatility changed over the years?

The following chart plots the standard deviation of weekly returns of the FTSE 100 Index on a 10-week rolling basis for the period 1984-2015. (A rolling 10-week calculation is used to smooth out the chart a bit.)

Standard deviation of rolling 10-week returns of the FTSE 100 Index [1984-2015]

As can be seen, there have been some obvious spikes in volatility – notably during the 1987 crash and credit crunch in 2008. But overall the general level of weekly volatility of the index has not changed significantly in the last three decades.

In fact the average standard deviation since 1984 has been 2.1 – so the current level of weekly volatility is pretty much exactly at the mean level for the past 30 years. And, at the risk of getting too iterative, the standard deviation of the mean of the standard deviations of the rolling 10-week returns of the index is moderately low at 1.1; meaning that for 68% of all 10-week rolling periods the volatility is between 1.0 and 3.9.

Extract taken from the The UK Stock Market Almanac.

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