Sell in May


Sell in May and go away is an investment strategy for stocks based on a theory that the period from November to April inclusive has significantly stronger stock market growth on average than the other months. In such strategies, stocks are sold at the start of May and the proceeds held in cash ; stocks are bought again in the autumn, typically around Halloween. "Sell in May" can be characterised as the belief that it is better to avoid holding stock during the summer period.
Though this seasonality is often mentioned informally, it has largely been ignored in academic circles. Analysis by Bouman and Jacobsen shows that the effect has indeed occurred in 36 out of 37 countries examined, and since the 17th century in the United Kingdom; it is strongest in Europe.

Causes

Data show that stock market returns in many countries during the May–October period are systematically negative or lower than the short-term interest rate. This appears to invalidate the efficient-market hypothesis, which predicts that any such returns would be bid away by those who accept the phenomenon. Alternative causes include small sample size or time variation in expected stock market returns. EMH predicts that stock market returns should not be predictably lower than the short-term interest rate.
Popular media consider this phenomenon each May, generally rejecting it. However, the effect has been strongly present in most developed markets.

Academic response

Maberly and Pierce extended the data to April 2003 and tested the strategy for April 1982 through April 2003 except for two months, October 1987 and August 1998. They found that it did not work well in the time period April 1982-September 1987, November 1987-July 1998 or September 1998-April 2003. Other regression models using the same data but controlling for extreme outliers found the effect to be significant.
A follow-up study by Andrade, Chhaochharia and Fuerst found that the seasonal pattern persisted. In the 1998–2012 sample on average November–April they found that returns are larger than May–October returns in all 37 markets they studied. On average, the difference is equal to about 10 percentage points. The magnitude of the difference is the same in both studies. Further backtesting by Mebane Faber found the effect as early as 1950.