Seasonal Effect in Equities

Various strategies have been documented to take advantage of season effect of equity markets. The notable seasonal effects are1:-

1. End of December Effect
2. January Effect
3. Turn of the month
4. Window Dressing
5. Pre-holiday Rally
6. Monday Effect
7. Lower Your Taxes

Though these have been documented in various books and web sources, I tried to look at how our year cycle effects different sectors of market. The two underlying principles in all my strategies are

1. investors give a lot more weight age to short information than long term information
2. more media coverage - stronger effects. e.g. if two sector are getting positive information - and one sector is getting more media coverage than another, then this sector's short returns will exceed others even if the fundamentals are exactly same

Now I will get down to some of the data that I collected to compare the performance of different sectors over the year for last 5 years.

1. Basic Materials: This sector includes chemicals, metals, precious metals, forestry and no-metals, etc.The data for past five years show a cyclicity in the sector as a whole. It will be more visible from following data: - 

       2. Capital Goods: The sector includes Aerospace & Defense, Construction & Agriculture machinery, raw material, mobile homes etc. The sector did come back in our investment period in three of last four years.

     3. Conglomerates: Conglomerates have done badly compared to S&P in all of the last four years.