Calendar / Seasonal Trading and Momentum Factor

Excerpt

We are continuing in our short series of articles about calendar / seasonal trading. In our previous work, we have examined various calendar / seasonal equity trading strategies. 

Data and Strategy construction

Our backtesting period spans from 29.4.2004 to 21.9.2019 and the data of ETFs are available for free at Yahoo Finance.

Calendar block

The Turn of the Month – we would rebalance the Turn of the Month strategy on the first day of the month. Since the first day of the month is, on average, the best performing day of the whole month.

Federal Open Market Committee Meeting Effect in Stocks – dates of FED meetings are publicly known and available, the simple execution of this strategy could be made by buying ETF on a close day before the meeting and selling it on the close after the meeting.

Option-Expiration Week Effect – is connected with the Option-expiration week – a week before options expiration (Friday before each 3rd Saturday in each month). The investor buys the ETF on close each Friday before 3rd Saturday in the month and sells it on close again in the next week’s Thursday.

The Payday Effect – very similar to the Turn of-the Month (ToM) anomaly, a strategy that utilizes this effect consists of buying the ETF on close on the 15th day each month and selling it on close the next day. 

We would like to point out that deeper insight into calendar strategies is in the previous article. When the dates of strategy ETFs rebalancing are known, we can move into the momentum block of the strategy.

See the full article on Quantpedia website:
https://quantpedia.com/calendar-seasonal-trading-and-momentum-factor/