Anomalies in the stock market and how to exploit them part 2
We already discussed what behavioral biases lead to anomalies and already discussed several anomalies. In this article you will learn about some more anomalies.
Monday Effect
The Monday effect, often referred to as the weekend effect, describes the anomaly that stocks tend to close at a higher level on Friday than on the following Monday. Although scientists still disagree on the exact reason, it is believed that the reason is that companies tend to release bad news on Friday after the stock market has closed.
Turn-of-the-month Effect
Turn-of-the-month refers to the anomaly that stocks tend to rise on the last day of the month, and usually generate momentum that continues 2 to 3 days into the next month.
Turn-of-the-year Effect
The Turn-of-the-year effect describes the tendency of stocks to be more heavily traded at the end of the year and thus to show a price increase in the last week of December and the first two weeks of January. Presumably, this anomaly is triggered by investors booking their profits at the end of the tax year and selling their shares to do so. Other investors react to the price drop and strongly purchase shares so that the price rises sharply again at the turn of the year.
January Effect
The January effect is part of the turn-of-the-year effect, but relates to a specific asset class. According to this anomaly, small cap stocks tend to outperform the market in the first two weeks of January.
Holiday Effect
The Holiday effect describes the anomaly that the market tends to rise just before public vacations. Again, the reasons are not yet fully understood, but a generally positive sentiment due to the upcoming vacations could be a reason for this anomaly.
Halloween Effect
The Halloween effect describes the anomaly that stocks tend to perform better in the months from October to April than in the remaining months. Figures from 1970 to today indicate that the return on the Standard & Poor’s 500 Index is much about 5% higher on average from November through April compared to the time frame from May till October.
