As we approach the end of the month it is worth point out an interesting phenomenon. This is called the turn of the month effect and it can be seen in equity markets. The reasoning for this is due to monthly cash flows. As many payments are made around the turn of the month it is only a natural part of the normal ebb and flow of the markets that there should be some statistical advantage. However, it surprised me how strong that bias was. For the purposes of this observation, the turn of the month was defined as being from the 26th to the 5th.
Here is a chart showing the cumulative return of the S&P500 around the turn of the month (blue line) vs the rest of the month (red line) from 1970 – 2018.
Brits can be a very regimented sort as they, in the words of Sherlock Holmes’s assistant Dr.Watson, like to keep their ‘habits regular’. Quite right Dr Watson.
However, the Germans take the prize for their turn of the month effect. Typical of Germans to get all the work done in the shortest time. Seems like Germans bring their work ethic to the DAX.
So, there we have it. The ‘Turn of the month’ effect courtesy of the great research undertaken by Seasonax.
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View more information: https://www.fxstreet.com/analysis/the-turn-of-the-month-effect-202103310952