The Holiday Effect in Stock Markets Explained — Strategies and Seasonal Insights
The holiday effect strategy seems to be significant for Independence Day, Thanksgiving, and Christmas. In this post, we look at seven different holiday effects and seasonalities in the US stock market. We look at how the S&P 500 performs before and around these holidays.
The first holiday of the new year is the Martin Luther King holiday. The holiday is always on the third Monday in January and the stock market is closed to observe the day. The earliest date for the holiday is January 15 and the latest is January 21.
We backtest the following trading rules:
We go long at the close on the first calendar day of the month which is higher than 11.
We exit at the calendar day 21 or more.
The equity curve looks like this (shown in the image below) in SPY.
The stock market seems to get very little help from the murder of Martin Luther King, even though January is one of the best months over time. There are 29 trades, the average gain is -0.05%, the win ratio is 57%, the profit factor is 0.9, and the max drawdown is 11%.
You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/holiday-effect-trading-strategy/