Working Paper: NBER ID: w20815
Authors: Matti Keloharju; Juhani T. Linnainmaa; Peter Nyberg
Abstract: A strategy that selects stocks based on their historical same-calendar-month returns earns an average return of 13% per year. We document similar return seasonalities in anomalies, commodities, international stock market indices, and at the daily frequency. The seasonalities overwhelm unconditional differences in expected returns. The correlations between different seasonality strategies are modest, suggesting that they emanate from different common factors. Our results suggest that seasonalities are not a distinct class of anomalies that requires an explanation of its own---rather, they are intertwined with other return anomalies through shared common factors. A theory that is able to explain the risks behind any common factor is thus likely able to explain a part of the seasonalities.
Keywords: Return Seasonalities; Common Factors; Anomalies; Investment Strategies
JEL Codes: G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| seasonalities are interconnected with other return anomalies (C22) | complex web of causal relationships (D89) |
| seasonalities (C22) | various asset classes (G19) |
| return seasonalities (C22) | well-diversified portfolios (G11) |
| historical same-calendar-month returns (N22) | future performance (L25) |
| common factors associated with firm characteristics (L25) | seasonalities in monthly U.S. stock returns (G14) |
| seasonalities (C22) | average return of 13% per year (G12) |
| common factors (C38) | observed seasonalities (C22) |