Applied Finance Letters (Nov 2021)

AN ANOMALY WITHIN AN ANOMALY: THE HALLOWEEN EFFECT IN THE LONG-TERM REVERSAL ANOMALY

  • King Fuei Lee

DOI
https://doi.org/10.24135/afl.v10i.465
Journal volume & issue
Vol. 10

Abstract

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In this paper, we investigate the presence of the Halloween effect in the long-term reversal anomaly in the US. When we examine the cross-sectional returns of winner-minus-loser portfolios formed on prior returns over the time period of 1931-2021, we find evidence of stronger returns during winter months versus summer months. In particular, the effect appears to be driven by very strong winter-summer seasonality in the portfolio of small-capitalisation losers, and lack of Halloween effect in the portfolio of large-capitalisation winners. Our finding is robust to alternative measures of long-term reversal, differing sub-periods, the inclusion of the January effect and outlier considerations, as well as within small and large-sized companies.