Sell in May (2017)

An update on the Sell in May Effect (also called the Six-Month Effect, or Halloween Effect in the US).

In the six months Nov 2016 to Apr 2017 (Winter period) the FTSE All-Share Index rose 5.2%. Previously, the Index had risen 10.1% over May 2016 to Oct 2016 (Summer period).

The out-performance of the Winter market over the Summer market was therefore -4.9 percentage points, which does not support the Sell in May Effect.

The following chart shows the out-performance of the FTSE All-Share Index in the Winter period over the previous Summer period since 1982.

Outperformance of winter over previous summer market [1982-2017]

In the 17 years since 2000 the Winter market has outperformed the previous Summer market 11 times, with an average out-performance of 4.6 percentage points.

As can be seen in the above chart, while in the longer-term the Sell in May effect is strong, in recent years it has become less reliable.

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Sell in May (2017)

It’s sell in May time again! 

And time for many articles appearing on whether to actually sell in May or not. So, should one sell?

The issue is a little tricky. It is certainly the case that equities over the 6-month period May to October tend to under-perform the November to April period. (We have covered this in many previous posts.)

However, just because the market under-performs May-October doesn’t necessarily mean that the market experiences negative returns over these summer months.

The following chart plots the 6-month May to October returns for the FTSE All-Share Index since 1982.

Market returns May to October [1982-2016]

As can be seen, since 1982 the market has actually risen more often than it has fallen over the May to October period –  equities have had positive returns in 20 of the past 35 years. The market has risen in ten of the last 14 years. And last year, 2016, the FTSE All-Share increased 10.1% May to October.

So, the case is not necessarily looking strong to sell in May. Especially, if one adds in the argument that being out of the market an investor will forego any dividend payments over the May-October period (and at a time when interest rates are very low).

An argument in favour of selling might be that, although the market often sees positive returns in the period, when the market does fall, the falls tend to be quite large. So, since 2000, the average return May-Oct has been -1.1%. Admittedly, this is quite heavily influenced by the fall in 2008, which might be regarded as something of an anomaly. But over the longer periods, the average returns are negative as well (-0.1% from 1982, and -1.0% from 1972).

In conclusion, whether to sell in May should likely depend on an individual’s attitude to risk and their transaction costs.

Further articles on sell in May.

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Sell in May (risk-adjusted returns)

The Sell in May effect (also known as the Halloween or Six Month effects) describes the tendency of the stock market to perform strongly in the period November to April in comparison to the period May-October. This effect has been observed in markets worldwide and has existed for many decades.

The following charts analyse this effect by looking at the performance of three portfolios:

  1. All Year portfolio – this portfolio is 100% invested in the FTSE All Share Index all year round
  2. Winter portfolio – is 100% invested in the FTSE All Share Index only in the months November to April (and is out of the market for the other half of the year).
  3. Summer portfolio – is 100% invested in the FTSE All Share Index only in the months May to October (and is out of the market for the other half of the year).

Cumulative returns

The following three charts plot the performance of the three portfolios to the present day from 1984, 1994 and 2004.


Sell in May (1984-2014)

Sell in May (1994-2014)Sell in May (2004-2014)As can be seen the divergence in performance between the Winter and Summer portfolios is quite remarkable.


The following chart partly summarises the performance by plotting the CAGR (compound annual growth rate) for the portfolios over the three periods.

Sell in May (CAGR) [2014]The two features to note are the CAGR for the Winter portfolio is greater than the CAGR for the All Year portfolio for all three periods, and that the CAGRs for the Summer portfolio are negative for all three periods studied.


The following chart shows the volatility of the three portfolios over the three periods. In this case volatility is calculated as the standard deviation of the portfolio daily returns.

Sell in May (Volatility) [2014]The features to note here are that the Winter portfolio consistently has the lowest volatility in each period, while the Summer portfolio has the highest. An explanation for this might be that the most volatile period of the year for the stock market has historically been September-October.

So, beyond superior returns, a feature of the Winter portfolio is that it avoids the most volatile period of the year..

Sharpe Ratio

The following chart to some extent combines the previous two into one by plotting the Sharpe Ratio for the three portfolios over the three periods. The Sharpe Ratio is one method of measuring the risk-adjusted returns of a portfolio.

Sell in May (Sharpe Ratio) [2014]With its superior returns and lower volatility the Winter portfolio can be seen to quite easily have the highest Sharpe Ratios for all three periods studied.


Other articles on the Sell in May effect.


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Six-Month Strategy with MACD

[November is the start of the strong six-month period of the year. The Almanac has covered some ways to exploit this effect. The following is an extract from the 2013 edition of the Almanac.]

We have already looked at the six-month effect in this book (the tendency for the November-April market to out-perform the May-October market), and how a portfolio based on this effect can dramatically out-perform an index fund.  But it is not necessarily the case that the strong half of the year begins every year on exactly 1 November, nor that it ends exactly on 30 April. By tweaking the beginning and end dates it may be possible to enhance the (already impressive) returns of the six-month strategy. An obvious rationale for this is that if investors are queuing up to buy at the end of October and sell at the end of April, it can be advantageous to get a jump on them and buy/sell a little earlier.

This idea of finessing the entry/exit dates was first proposed by Sy Harding in his 1999 book, Riding the Bear – How to Prosper in the Coming Bear Market. Harding’s system takes the six-month seasonal trading strategy and adds a timing element using the MACD indicator. First, by back-testing, Harding found that the optimal average days to enter and exit the market were in fact 16 October and 20 April. Then, using these dates, his system’s rules are:

  1. If the MACD already indicates the market is in a bull phase on 16 October the system enters the market, otherwise the system waits until the MACD gives a buy signal.
  2. If the MACD already indicates the market is in a bear phase on 20 April the system exits the market, otherwise the system waits until the MACD gives a sell signal.

Following such rules, the entry or exit dates of the strategy can be one or two months later than the standard 1 November and 30 April.  Harding calls his system the Seasonal Timing Strategy (or STS).

Commenting on the STS, Mark Hulbert of said in April 2012,

Harding’s modification of the Halloween Indicator [six-month strategy] produced a 9.0% return (annualized) over the same period [2002-2012], or 2.0 percentage points per year more than a purely mechanical application of this seasonal pattern, and 3.6 percentage points ahead of a buy-and-hold.

Can such a strategy work in the UK market?

We found it difficult to replicate similar results for the UK market using Harding’s STS system. One problem was that 1 November is such a good date for entering the market – it was difficult to consistently improve on it with any technical indicator.  However, we did come up with one simple system that improved on the standard six-month strategy. Briefly, its rules are:

  1. The system enters the market at close on 31 October.
  2. The system exits the market on the first MACD sell signal after 1 April.
  3. The parameters of the MACD indicator were increased from the usual default values to 24, 52, 18.

In effect, the standard entry date is unchanged, but the exit date is determined by the MACD. In some years, this can delay exit to June or later.

To illustrate the performance of this system the following chart shows the returns on three portfolios since 30 October 1999:

  • Portfolio 1: a portfolio tracking the FTSE All Share Index
  • Portfolio 2: employing the standard six-month strategy
  • Portfolio 3: employing the six-month strategy enhanced using MACD

At the end of the 12-year period, portfolio 1 (the market) was valued at 1027 (from a starting value of 1000), portfolio 2 valued at 1469 and portfolio 3 valued at 1675.

It’s quite possible that further tweaking of the parameters and system rules could additionally enhance the strategy’s performance.*

* The 2014 Almanac details another variation on this strategy.

See also

Further articles on the Sell in May Effect.

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Six month effect – everywhere and always

A paper published this month by Ben Jacobsen and Cherry Yi Zhang gives the results of a study that crunched the numbers on all available data for 108 stock markets to see how widespread the six month effect (aka Sell in May or Halloween effects) might be.

The authors found evidence for the effect in 81 out 108 countries, and of it being statistically significantly in 35 countries. The strongest six month effects were found among Western European countries for the past 50 years. They also found that the effect had been strengthening in recent years.

The following chart is from the paper and shows average returns for Nov-Apr periods (back row) compared to average returns for May-Oct periods for developed markets.

But they still could not come up with an explanation for the effect. They were (rightly) sceptical of the SAD (seasonal affective disorder) hypothesis – whereby investors become more risk-averse as nights lengthen in the autumn and vice versa in the spring. (If this hypothesis was correct then surely the effect would be reversed in Australia and New Zealand – which it isn’t.) The authors’ best conjecture as to the cause of the six month effect was summer holidays.

The first mention of the market adage “Sell in May” the authors found was in the Financial Times of 10 May 1935-

A shrewd North Country correspondent who likes a stock exchange flutter now and again writes me that he and his friends are at present drawing in their horns on the strength of the old adage “Sell in May and go away.”


A “stock exchange flutter” – does anyone say this any more? The Concise Oxford Dictionary defines a flutter as-

a state or sensation of tremulous excitement.

So, if you want some tremulous excitement, this is the place.

See also

Further articles on the Sell in May Effect.

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