calendar effects

Calendar Effect

The extent to which holding a stock at a particular time helps or harms returns. That is, some analysts believe that stocks perform better or worse on given days, months, or even years. Analysts disagree on which, if any, calendar effects are "real," but they can have an impact on the psychological outlook of investors, which can help or harm returns. For example, some investors believe that October is a bad month to buy because many of the great stock market crashes took place in October. Whether or not there is any evidence for this, it may discourage enough investors from buying that it actually will harm stock prices. Major examples of calendar effects include the January effect and the presidential election cycle theory.

calendar effects

The impact a particular day, week, or month a security is owned has on rates of return. For example, studies indicate tax selling produces downward pressure on stock prices during the end of the calendar year followed by upward price pressure in January. See also January effect.