There is overwhelming evidence that abnormal equity returns are associated with the turn of the year, the week and the month, as well as with holidays and the time of day. These returns are not unique to one historical period, nor can they be explained by considerations of risk or value.
Tax-loss selling at year-end, cash flows at month-end and negative news releases over the weekend may explain some of these return abnormalities. But human psychology offers a more promising explanation. Calendar anomalies tend to occur at turning points in time. While these artificial moments have little economic significance, investors may deem them important, and behave accordingly.
The question remains why these effects, which have been recognized for some years, have not been arbitraged away. Trading costs are, of course, an impediment. A portfolio manager would not consider liquidating an entire portfolio on a Friday merely in order to avoid experiencing relatively poor weekend returns. But planned trades can be scheduled to take advantage of calendar-based return patterns. Calendar effects should be of particular importance to traders.
