DIY Investor Magazine
/
March 2016
31
The behaviour is extraordinary and should not exist in
a modern, efficient(ish) market. But exist it does.
Indeed, a similar effect also exists in other markets
such as the US.
How long has this been operating?
The following chart is identical to that above except that
the data starts from 1922.
We can see from this chart that in the first half of the
20th century performance in the two periods was
quite evenly balanced, but the behaviour changed
significantly around the beginning of the 1970s.
It may be that the above study is woefully short term
in its approach. An academic paper in 2012 found
evidence of the Six-Month Effect (also called the Sell
in May Effect in the UK and the Halloween Effect in
the US) starting from 1694 in the UK.
The paper also found that the effect was present in 36
of 37 developed and emerging markets.
OLYMPIC GAMES
Does analysis of the historic behaviour of stock markets
around the time of the four-yearly Olympic Games have
anything of interest for investors?
The hosts of the Olympic Games are usually
announced seven years in advance; for example after
Rio de Janeiro this year the next games will be held in
Tokyo in 2020.
The Olympic Games are a major event, often requiring
much spending to improve infrastructure; such
spending can provide a fillip to a nation’s economy.
If this affects prices on the stock market it is likely to
happen soon after the announcement of a country
winning the competition to win the event – so, long
before the Olympics take place.
The following chart plots the average performance of
stock markets in countries that have recently hosted
the Olympics: US (1984, 1996), Australia (2000),
Greece (2004), UK (2012). (NB. China was omitted as
it hosted the Games in 2008 – a year when stock
markets had their focus on other matters. all the
markets over three periods:
1.
Before games: from January 1st to the start of the
games
2.
During games: the two-three week period of the
games
3.
After games: from the end of the games to 31st
December
The darker bars are the average performance
calculated excluding China and Greece
