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Turn of the Month in Equity Indexes

by Brian Brown, 2193 days ago
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The turn of the month effect on stock indexes states that stock prices performs better on the first three days and the last four days of each month. The idea is based on several academic papers such as the Equity Returns at the Turn of the Month, Further Evidence on the Turn of the Month Effect or the Do Seasonal Anomalies Still Work? (Links to these papers can be found at the bottom). Researchers explain this effect by the timing of cash flows received by pension funds and invested in the stock market. The end of month is also the moment several investors rebalance their trading strategies.

Based on that, I have implemented a simple trading system that enters long the SPY (S&P 500 ETF) 4 days before the end of the month (at close) and exits that position 3 days after the beginning of the next month (at close). The result is quite good.

Note that this trading system requires the following functions:
Number of bars since the beginning of the month
Number of bars up to the end of the month

You can also optimize this trading system by clicking on the optimize button. The optimization consists of varying the number of days before the end of the month to enter SPY and the number of days after the start of the month to exit SPY.


Idea from: http://www.quantpedia.com/Screener/Details/41
Link to papers:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=917884
http://astonjournals.com/manuscripts/Vol2010/BEJ-16_Vol2010.pdf
http://www.iijournals.com/doi/abs/10.3905/jpm.2010.36.3.093


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Type: Trading System

Object ID: 1374


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