Calendar and seasonality effects
SeasonalityIntermediate
Seasonality rules hold a market only on calendar dates that have historically differed from the rest of the year. Two of the most studied are the turn of the month, a short window around month-end, and the Halloween pattern, being long stocks from roughly November through April and out over the summer. They are statistical descriptions of past calendars, and they can fade once they are widely known.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- A turn-of-the-month rule is long the equity index from the last trading day of the month through the first few trading days of the next, and in cash otherwise. A sell-in-May rule is long from the start of November through the end of April. Both need a precommitted calendar, a cost assumption for the extra trades, and a check on subperiods. Combining several calendar effects after seeing which ones worked is data mining.
- Where AI fits
- AI can test whether a published window still shows up in later years, on other indexes, and after costs, which is the right use of a search. It should not scan every possible start and end date and keep the winner. An LLM can implement the trading calendar, including holidays, so the window is the actual session and not a naive day count.
- Markets
- Broad equity indexes. Single stocks are too noisy for a calendar rule. Some commodity calendars exist and are separate effects.
- Timeframes
- Daily positions held for a few days, or for whole seasons. There is no intraday signal here.
- Risks
- A short window has few independent observations, so one crash dominates the average. Transaction costs and taxes eat a strategy that is flat most of the month. A pattern that was real can shrink after it is published, and a backtest that picked the dates from the same history is not evidence.