What is it about?
The purpose of this paper is to provide a plausible explanation for the “sell in May” anomaly observed in US stock markets. A heretofore unexplained strategy of selling stock in May and not returning to the market until November has been shown to outperform a simple strategy of buying and holding stock all year long.
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Why is it important?
While the sell-in-May effect appears to persist in the long run, the authors find that the anomaly is not present in non-election years. There is no significant difference between the May–October and November–April stock returns in non-election years. The observed sell-in-May effect is driven by poor stock returns in the May–October periods leading up to US presidential or congressional elections and subsequent strong performance in the November–April periods immediately following elections.
Perspectives
Net net the even numbered years are US congressional years and the 'sell in May, go away' indeed works, leading to summer underperformance. Once the November elections uncertainty is lifted, the markets come back.
Professor Pankaj Agrrawal
University of Maine
Read the Original
This page is a summary of: Is the “sell in May and go away” adage the result of an election-year effect?, Managerial Finance, September 2018, Emerald,
DOI: 10.1108/mf-12-2017-0505.
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