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The Stock Exchange world is in a sort of twilight state at the moment. The potential buyers seem to have "sold in May and gone away" ... .
Financial Times, May 30, 1964, p. 2
Every year, usually in the month May, the European financial press refers to a-presumably-old and inherited market saying: "Sell in May and go away."1 According to this saying, the month of May signals the start of a bear market, so that investors are better off selling their stocks and holding cash. There are two different endings to the saying. The first of these is: "but remember to come back in September"; the second is: "but buy back on St. Leger Day"-in which "St. Leger Day" refers to the date of a classic horse race run at Doncaster in England every September. According to the saying, stock returns should be lower during May through September than during the rest of the year, and although many Americans tend to be unfamiliar with it, Michael O'Higgins and John Downes (1990) report a closely related and similar strategy related to market timing. Referred to as the Halloween indicator, it is "so named because it would have you in the stock market starting October 31 and through April 30 and out of the market for the other half of the year."
This paper examines whether stock returns are indeed significantly lower during the May-- October period than during the remainder of the year. While we report results for the month October, results are similar when we use September instead. Surprisingly, we find the Sell in May effect is present in 36 of the 37 countries in our sample. The effect tends to be particularly strong and highly significant in European countries, and also proves to be robust over time. Sample evidence shows that in a number of countries it has been noticeable for a very long time, and in the U.K. stock market, for instance, we have found evidence of a Sell in May effect as far back as 1694. We find no evidence that the effect can be explained by factors like risk, cross correlation between markets, or the January effect. We also try some alternative explanations-that we discuss later in this paper-but none...