Calendar Effect (Stock Market) - Explained
What is the Calendar Effect?
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Table of ContentsWhat is the Calendar Effect?How Does a Calendar Effect Work?Other Examples of the Calendar EffectAcademic Research on Calendar effect
What is the Calendar Effect?
The calendar effect refers to changes in the market price or market index due to how particular days, months or times of the year relate with prices of commodities in the market. There is a collection of theories that ascertain that some days, months and times have some significant relationships with prices of commodities, this relationship however indicate either a good or bad time to invest in the market. Popular theories under the calendar effect include October effect, January effect, Monday effect and Halloween effect. The calendar effect show apparent behaviors of commodities in the stock market due to their relationship with certain periods.
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How Does a Calendar Effect Work?
Evidence provided by theories in the calendar effect are not totally reliable, though some of these evidence have statistical backings. Investors in the stock market know whether it is a good time for investment or a bad time through the evidence provided by these theories. For example, the October effect which is one of the most popular theories in the calendar effect maintains a position that the greatest crashes in stock market do happen in October, it backs this position up with evidence and historical records. For instance, the market crashed in 1929 and 1987 both happened in October. However, there is no statistical evidence that supports this position.
Other Examples of the Calendar Effect
Other theories in the calendar effects include the Monday effect, Halloween effect, January effect and others. Another good example of the calendar effect is the Super Bowl effect known by sports fans. This effect maintains a position that the outcome of Super Bowl for a particular year plays a major role in determining the performance of the stock market for the year. That means that stock performance can be predicted from the results of Super Bowl. Bear and bull markets are also predicted using the outcome of Super Bowl. although, this indicator has a record of 40 successes out of 50 attempts, it was argued that there is no actual relationship between the Super Bowl and the U.S stock market, the successes were just coincidental.