Financial markets seasonality: Analysis by asset class and portfolio creation

Details

Supervisors

Nguyen, Anh

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion, à finalité spécialisée

Abstract

The aim of this thesis is to study the seasonality of financial markets through two effects: the January effect and the Halloween effect. The seasonal effect can be defined as a higher return over a well-defined period compared to the rest of the year. With a database made up of stock market indices from different developed and emerging countries, and indices on a variety of types of bonds, we find a significant Halloween effect on financial markets. Indeed, using simple linear regression and time-series models, we demonstrate a significant Halloween effect on our entire data set. Moreover, using different models, we have shown that volatility cannot explain the Halloween and January effects. We have also demonstrated, using an interaction variable, that market seasonality is not influenced by inflation or the unemployment rate. In short, this study is interesting because it allows, via the Halloween effect and the purchase of indexes/ETFs over this period, and the purchase of government bonds over the rest of the year, to outperform a buy and hold strategy. This study is interesting because it allows any investor to take advantage of this seasonality, and even more so to take advantage of the Halloween effect in order to obtain superior returns compared to a buy-and-hold strategy.