DEFINITION of 'October Effect'

The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological expectation rather than an actual phenomenon. Most statistics go against the theory.

BREAKING DOWN 'October Effect'

Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. Black Monday, Tuesday and Thursday all occurred in October 1929, after which came the Great Depression. In addition, the great crash of 1987 occurred on October 19, and saw the Dow plummet 22.6% in a single day.

RELATED TERMS
  1. Calendar Effect

    A collection of assorted theories that assert that certain days, ...
  2. Stock Market Crash Of 1987

    A rapid and severe downturn in stock prices that occurred in ...
  3. Stock Market Crash Of 1929

    A severe downturn in equity prices that occurred in October of ...
  4. Biased Expectations Theory

    A theory that the future value of interest rates is equal to ...
  5. Weekend Effect

    A phenomenon in financial markets in which stock returns on Mondays ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) ...
Related Articles
  1. Investing

    October: The Month Of Market Crashes?

    In the finance world, October is a month to be feared, but is it justified?
  2. Investing

    7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
  3. Insights

    What Happened On Black Monday?

    On October 19, 1987, the Dow Jones dropped 508 points, or almost 22% in a single day. That was Black Monday.
  4. Trading

    The Crash Of 1929 - Could It Happen Again?

    Learn about the series of events that triggered the Great Depression.
  5. Insights

    Dow Theory

    Learn about the foundation upon which technical analysis is based.
  6. Investing

    Modern Portfolio Theory vs. Behavioral Finance

    Modern portfolio theory and behavioral finance represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions ...
RELATED FAQS
  1. What's the difference between agency theory and stakeholder theory?

    Learn how agency theory and stakeholder theory are used in business to understand common business communication problems ... Read Answer >>
  2. What is the chaos theory?

    The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant ... Read Answer >>
  3. How is the Dow Jones Industrial Average used in the Dow theory?

    Discover how the Dow Jones Industrial Average is used in the Dow Theory, which is used by traders to figure out the trend ... Read Answer >>
  4. Why is Game Theory useful in business?

    Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy ... Read Answer >>
  5. What are the differences between weak, strong and semi-strong versions of the Efficient ...

    Discover how the efficient market theory is broken down into three versions, the hallmarks of each and the anomalies that ... Read Answer >>
  6. How do investors lose money when the stock market crashes?

    Over the last hundred years, there have been several large stock market crashes that have plagued the American financial ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center