What Is The Halloween Strategy?
The Halloween strategy, Halloween effect, or Halloween indicator, is a market-timing strategy based on the hypothesis that stocks perform better between Oct. 31 (Halloween) and May 1 than they do between the beginning of May through the end of October. The strategy posits that it is prudent to buy stocks in November, hold them through the winter months, then sell in April, while investing in other asset classes from May through October. Some who subscribe to this tactic say not to invest at all during the summer months.
The idea that investors can time the market in this way is contrary to the buy-and-hold strategy, in which an investor may ride out down months, and invest for the longer term. The superior results seem to contradict the premise of the Efficient Markets Hypothesis and that stocks behave in a completely random manner.
KEY TAKEAWAYS
- The Halloween strategy suggests that investors should be fully invested in stocks from November through April, and out of stocks from May through October.
- Variations of this strategy and its accompanying axioms have been around for over a century.
- There is evidence that this strategy does perform well over several years, but no one has offered a satisfactory explanation for why it works.
- The Halloween indicator is fascinating for the reason that it is an empirical anomaly as well as a mystery.
This article originally appeared at Investopedia.
Category: Stocks
