Studies - Posted on Saturday, September 11, 2010, 10:17 PM GMT +1

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Sep Saturday 11

S&P 500: Best and Worst Performing Month since 1940

Most recently monthly seasonalities got a lot of press around the blogosphere (who hasn’t heard the stock market adage that September has historically been the worst performing month). Bespoke Investment Group and Wall Street Pit (among many others) covered this topic, and Michael Stokes at MarketSci shows (as a monthly feature) a day-by-day seasonality map for every business day in September.

As a number cruncher (and for like-minded guys) I thought it would be interesting to check if – and to what extend – this proves true, and to figure out which month is – from a long-term perspective – the best / worst performing month, and what are respective historical probabilities and odds (expectancy and profitability).

(If you’re interested in the summary only, please click here)

Table I below shows the S&P 500‘s historical performance (since 1940) for January, February up to June, assumed one went long on close of the last session of the previous month (e.g. on the 31st of December of every year since 1940) and went into cash on close of the last session of the respective month (e.g. on 31st of January of every year since 1940) for the then following 11 month (no return on cash).


Here is the link to the stats in a more ‘readable’, original size: Statistics 1

Table II below shows the S&P 500‘s respective periodic (weekly, monthly, quarterly, yearly) returns (since 1940) for January, February up to June and some additional performance metrics.


Here is the link to the stats in a more ‘readable’, original size: Statistics 2

Table III below shows the S&P 500‘s historical performance (since 1940) for July, August up to December, assumed one went long on close of the last session of the previous month (e.g. on the 31st of July of every year since 1940) and went into cash on close of the last session of the respective month (e.g. on the 31st of August  of every year since 1940) for the then following 11 month (no return on cash).


Here is the link to the stats in a more ‘readable’, original size: Statistics 3

Table IV below shows the S&P 500‘s respective periodic (weekly, monthly, quarterly, yearly) returns (since 1940) for July, August up to December and some additional performance metrics.


Here is the link to the stats in a more ‘readable’, original size: Statistics 4

Conclusions:

Very long-term (last 70 years), and looking at compound returns, geometric growth per trade (-0.0284%, nth root of compound returns, while n reflects the number of sessions in order to make those month with a regularly deviating number of session comparable), profit factor (0.94), month positive (44.29%), maximum drawdown (on a week-end basis: 47.16%, and on a month-end basis: 44.66%), and median monthly return (-0.33%), September is in fact the worst performing month. But surprisingly not by a wide margin (except the maximum drawdown). February is very close, with distribution of returns at 47.80% (the median daily return in February’s significantly undercuts the median at-any-time daily return, and is the lowest of all month).

And the winner is: December. Since 1940, 75.71% (every three out of four) of the time December showed a positive month-end performance, a median monthy return of 1.55% with the lowest standard deviation (3.12%), a maximum drawdown (month-end) of 6.29% only (especially in comparison to September’s 44.66%), a profit factor of 1.33, with the lowest median losing trade of -0.38% and the highest t-score vs. chance and market (statistical significance). April and March take the less prominent places (take a look at the respective t-scores).

Not surprisingly, September and October (on top) are leading the pack with respect to historical volatility (annual.) and maximum loss (negative daily returns / one-day losses of -11.93% and -21.76% respectively).

Interestingly, December, April and March as the best performing month where historically very ‘inconspicuous‘, regularly not attracting much attention. ‘inconspicuous‘ in the sense of showing the lowest maximum drawdown on a day-to-day basis, a proportionally below-average percentage (< 10%) of sessions in the top / bottom percentile of the at-any-time best / worst performing sessions (Top 10% Winners, Top 10% Losers).

Enjoy your weekend, and successful trading,
Frank

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Disclaimer: No position in the securities mentioned in this post at time of writing.

Remarks: Due to their conceptual scope – and if not explicitely stated otherwise , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in, do not use leverage (e.g. leveraged ETFs) but a marginable account is mandatory , do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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Comments (2)

 

  1. […] By the end of October the markets were up an average of over 13%, in a month that is historically volatile and negative. As a small example of why you can’t time the market, think about how you would feel if you took […]

  2. […] By the end of October the markets were up an average of over 13%, in a month that is historically volatile and negative. As a small example of why you can’t time the market, think about how you would feel if you took […]

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