Feb

3

Using SPY (93-2013), here is comparison of return for 1st day of month (close last day of prior month to close first day of new month) vs. all days in the period:

Two-sample T for 1DOM ret vs all dat ret

                      N    Mean    StDev  SE Mean
1DOM ret      250  0.0029  0.0136  0.00086  T=2.8
all dat ret     5270  0.0004  0.0122  0.00017

For 1DOMs following a down month as we just had, checked 1DOM returns when the prior 20 trading day return was down more than 2%.  Here again compared to return of all days in the period:

Two-sample T for 1DOM <-2% vs all dat ret

                           N    Mean   StDev  SE Mean
1DOM <-2%      60   0.0012  0.0200   0.0026  T=0.32
all dat ret        5270  0.0004  0.0122  0.00017

>>not as good

As to whether 1DOM has become DUM, attached is a chart of mean 1DOM return by year.  Recent years 2008 and 2011 have undermined the pattern (the last year on the chart is 2014, which represents one data point = 1st day of January)

Gary Rogan writes: 

A steep multi-year rise making equity values fairly expensive, buying on the dips always having worked in recent past, and then a reduction in liquidity. Three was no other specific catalyst for the equity markets to unravel, but it was an end of an era: the enthusiastic dotcom era, and this is the beginning of the end of the era of "the market goes up because the Fed will always save the day, so any bad news is good news".

Steve Ellison writes: 

 Three years ago, I posted on a variation of this idea that was published by Norman Fosback in 1976 and added stats from 2005 to 2010: http://www.dailyspeculations.com/wordpress/?p=5867 . When an idea has been known this long, it would be surprising if it worked at all. There was even an ETF a few years back that was only going to be invested on the 1st of the month. I don't know if it has survived.

I found that, over a very long period of time, this idea could still lead to good returns, but there were periods lasting a year or more when it did not work. As Steve Irwin found, the crocodiles hate you and might be waiting for you at the same spot you jumped in last time.


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