How You Can Benefit From Event Studies

Articles From: Seasonax
Website: Seasonax

By:

Co-Founder and Head Analyst

Seasonax

Dear Investor, 

Event Studies provide a completely new way to improve your investment strategies. 

As a Seasonax user you can benefit from these new Event Studies.

Business users have free access to all events. If you are not a business user yet, just upgrade to use the full Seasonax feature set!

Let me show you an example of how you can profit from event studies when trading and investing.

FED meetings boost the stock market!

I would like to go back to the example you are familiar with, and which I already presented four weeks ago: the Fed meeting. This takes place eight times a year, and sets monetary policy along with the level of key interest rates.

While most investors are watching spellbound for the central bankers’ decision, a statistically relevant price movement is taking place in the run-up. 

How you can create an event chart yourself 

To create this event chart, first select the S&P 500 in Seasonax. Click on “Events” at the top left of the chart, and then select the event “FED Meeting (second day)” from the dropdown menu to the right.

The following event chart appears. It shows you the mean trend of the S&P 500 in the ten trading days before and after the second day of the FED meeting, when the interest rate decision will be announced. The red line in the middle marks this second day of the FED meeting.

Average performance of the S&P 500 ten trading days before and after the second day of the FED meeting (2013 to 2023)

Average performance of the S&P 500 ten trading days before and after the second day of the FED meeting (2013 to 2023)

In the two days before, the S&P 500 rises particularly strongly. Source: Seasonax

A glance at the event chart will tell you what the typical course of U.S. stock prices looks like around the important central bank meeting.

Noticeably, stock prices were already rising in the run-up to the announcement of the outcome of the FED meeting. After that, there was a slowdown. 

With two mouse clicks you have the result

You can now observe a pattern, as in the seasonal analysis, by marking the interesting phase with the mouse. We decide on the two days before – in just these 16 trading days a year, a larger profit was achieved in the past 25 years than in the remaining 240 or so trading days of the year!

To mark the tradable pattern, click the mouse in the chart at the point marked with the green arrow, hold the mouse button, drag it to the red arrow and release there:

Average performance of the S&P 500 ten trading days before and after the second day of the FED meeting (2013 to 2023)

Average performance of the S&P 500 ten trading days before and after the second day of the FED meeting (2013 to 2023)

The pattern is quickly marked. Source: Seasonax

The evaluation of the pattern appears immediately with the key figures and evaluation diagrams, as you know from the seasonal analysis:

Seasonax screen, detail, with event study

Seasonax screen, detail, with event study

The result will appear immediately. Source: Seasonax

On the right you can see the evaluation with important key figures such as the annualized return or the hit rate (“winning trades”). Below you will find other diagrams and detailed statistics. 

For example, look at the capital yield curve (“cumulative profit”):

Capital return curve of the event “two days to the FED meeting”

Capital return curve of the event "two days to the FED meeting"

The yield trend was very good in 2022. Source: Seasonax

It illustrates the earnings trend. There was an increase from 2013 to 2016, then a sideways movement, and then again an increase. 

Particularly noteworthy: the year 2022, which was disastrous for most investors, also saw a significant increase (green circle). 

What I personally find very positive is the stability of the pattern. It has been profitable since the mid-1980s. Moreover, it was prominently published in a scientific journal in 2011. So there have certainly been many hedge funds and other investors who have arbitraged it. Yet it still works!

Nearly 100 events at Seasonax mean millions of event studies

This is only one event study out of many, which you can determine with just a few mouse clicks. At Seasonax, you can choose from almost 100 events covering a wide range of areas, from reports such as the CPI or labor market data, to futures expiration days such as the witches’ Sabbath and calendar events.

You can combine these events with any instruments – indices, stocks, currencies or commodities. This results in several million event studies in mathematical terms.

Thus, there should be events on most days of the year that have proven significant in the past.

How investors can use event studies 

Event studies can be used by investors in the same way as seasonality. However, most event studies are short-term in nature. Very few events last for weeks or months. Nevertheless, it is not only traders who can use event studies:

  • You can trade events directly, one after the other or several at a time. The direct approach is suitable especially for short-term traders.
  •  Traders can also use the trends of the events as a filter. In this case, the trader does not take a position against the pattern, with the intention of increasing the probability of return of a trade.
  •  Investors can use an event study for timing purposes and, for example, bring forward a planned purchase. This also results in an additional benefit of the event study for long-term investors.
  •  Investors can use events as an additional input to their existing approach. The previous strategies can thus continue to be used. 

Let me emphasize again: the event studies are an additional offer of Seasonax free of charge for our customers! Of course, you can and should continue to use seasonality, but you can open up further opportunities with event studies.

Why not try out an event study at www.seasonax.com right now! 

Originally Posted March 7, 2023 – How You Can Benefit From Event Studies

Disclosure: Seasonax

Past results and past seasonal patterns are no indication of future performance, in particular, future market trends. Seasonax GmbH neither recommends nor approves of any particular financial instrument, group of securities, segment of industry, analysis interval or any particular idea, approach, strategy or attitude nor provides consulting nor brokerage nor asset management services. Seasonax GmbH hereby excludes any explicit or implied trading recommendation, in particular, any promise, implication or guarantee that profits are earned and losses excluded, provided, however, that in case of doubt, these terms shall be interpreted in abroad sense. Any information provided by Seasonax GmbH or on this website or any other kind of data media shall not be construed as any kind of guarantee, warranty or representation, in particular as set forth in a prospectus. Any user is solely responsible for the results or the trading strategy that is created, developed or applied. Indicators, trading strategies and functions provided by seasonax GmbH or on this website or any other kind of data media may contain logical or other errors leading to unexpected results, faulty trading signals and/or substantial losses. Seasonax GmbH neither warrants nor guarantees the accuracy, completeness, quality, adequacy or content of the information provided by it or on this website or any other kind of data media. Any user is obligated to comply with any applicable capital market rules of the applicable jurisdiction. All published content and images on this website or any other kind of data media are protected by copyright. Any duplication, processing, distribution or any form of utilisation beyond the scope of copyright law shall require the prior written consent of the author or authors in question. Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Seasonax and is being posted with its permission. The views expressed in this material are solely those of the author and/or Seasonax and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.