Investor vs. market, or about anomalies continued….

Surely each of us would like to know the answer to that intriguing question, how to get rich from stock market investing? The braver ones share their insights, while the more resolute ones monetize their strategies. So, since there are individuals who have outsmarted the market it must mean that there are some recurring structures in the market – called anomalies.

At the outset, it is worth noting that this is a subject like the “financial” Loch Ness monster, where some belief in its existence and others consider any tales about this monstrosity as a multi-generational legend. It’s up to your attitude, experience to individual analysis to forge a personal attitude towards the anomaly phenomenon – be sure to let us know which side of the camp you’re on!

The Halloween effect

Opponents of the theory of efficient markets assume that with the end of October – commonly referred to as Halloween day – the chances of achieving a higher rate of return in the stock market increase significantly. Many publications link the Halloween effect to the “sell in May and go away” anomaly, which states that October is the most favorable time to enter the market. Achieving higher profits in October than in the summer months contributes to debunking the myth of financial market efficiency. Challenging the fundamental principles that guide the market could not be done without solid empirical studies. Their fruit provides a rational argument in this long-standing unfinished discussion on the existence of anomalies in the stock market.

Why does the Halloween effect occur?

If one were to look for reliable stimulants for this phenomenon, then one would have to point to both the increase in market liquidity during the winter months and the increase in volume during this period.

Psychological aspects also play their part – the increased celebration of the Halloween holiday in the United States has been closely linked to the culture of consumption for a long time. (It is worth mentioning at this point that in 2021 the cost of American candy and pranks amounted to about $10 billion.)

The ubiquitous aura of spending unwittingly carries over to the financial market, which, under the influence of buoyant emotions and moods, abounds in results that cannot be pigeonholed.

To believe or not to believe?

Nevertheless, all the sources described may seem quite dubious in the eyes of theorists. Not only the increasing liquidity of the market but also the increasing volume of sales is a mere maelstrom, especially when financial markets are nowadays public. In addition, any research-established argument can be countered at least by the experience of daily practice, i.e. proving a paradoxical deviation from the deviation. Therefore, the most accurate summary and at the same time a proper rendering of the meaning of the words “anomaly” is the following quote:

“The Halloween strategy is fascinating precisely because it is both an empirical anomaly and a mystery.”

Paulina Słupska

Paulina Słupska

An analyst by education. Although I believe that analysis is the domain of exact scientists, it would not exist without creativity. I try to pour my creative outlook on the world onto e-paper. I'm one of those dreamy pragmatists who rely on constructiveness but, at the same time, let their imagination run wild. In my spare time, in addition to posing questions and refuting theses, I engage in more mundane activities. Sometimes it's yoga, sometimes process automation, sometimes graphic design, and sometimes spiritual development. It varies from time to time.

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