What is 'Halloween Strategy'

Halloween strategy — Halloween effect, or Halloween indicator — is an investment strategy based on the theory that stocks perform better between October 31 (Halloween) and May 1 (“winter” months) than they do between the beginning of May through the end of October (“summer” months). Therefore, the theory posits, it is prudent for investors to buy equities from November through April, and to focus instead on investing in other asset classes from May through October; although some who subscribe to this tactic say not to invest at all in the summer months. This technique is contrary to the buy-and-hold strategy, in which an investor may ride out down months.

Breaking Down 'Halloween Strategy'

Halloween strategy is closely related to the phrase, sell in May and go away, which refers to the six months between May 1 and October 31, when according to the Halloween strategy, investors should “walk away” from investing in equities. In this way, an investor using the Halloween strategy would be fully invested for one six-month period and out of the market for the other six months of the year. Theoretically, he or she would reap the best part of an annual return, but with just half the exposure of someone who invests in stocks year-round. 


The Halloween strategy is based on a stock market anomaly that dates from at least the 1930s. Many believe that the notion of abandoning stocks in May of each year has its origins in the United Kingdom, where the privileged class would leave London and head to their country estates for the summer, largely ignoring their investment portfolios. Today, it is common for salesmen, traders, brokers, equity analysts, and others in the investment community to leave their metropolitan financial centers in summer in favor of oases like the Hamptons in New York, Nantucket in Massachusetts, and their equivalents elsewhere.

Truth? Fiction? Or, Just a Regular Irregularity!

The Halloween strategy does have veracity; and some think that it is holding up stronger than ever. Historical returns suggest that the premise of the Halloween strategy has been mostly true throughout the past-50 years — that the months between November and April actually have provided investors with stronger capital gains than have the other months of the year. Results also show that a sell-in-May strategy is successful in beating the market more than 80 percent of the time when employed over a five-year horizon, and more than 90 percent successful in beating the market when used with a 10-year horizon.

The graph below displays the Halloween effect for U.S. stocks for the comparable periods 1970–2017 and 1991–2017. It indicates that the return on the Standard & Poor’s 500 Index (S&P 500) is much higher from November through April than it is between May and October.

Halloween Effect

What Causes the Halloween Effect?

Many market watchers believe that investment professionals’ summer vacations do have an impact on market liquidity, and that investors’ aversion to risk during the summer months is at least partly responsible for the difference in seasonal returns. The same traders who leave for vacation in the summer return in full force in the fall. So, in that sense, following the herd could result in higher returns based simply on rising and falling trading volume.

There is no dearth of theories to support whatever one wants to believe about the Halloween strategy. For as many different opinions as there are about the Halloween effect, there are an equal number of theories to support those opinions. The Halloween strategy fascinates for the very reason that it is both an empirical anomaly as well as a mystery. It commands our attention because of the impressive returns it has provided, its persistence over time, and the fact that it cannot easily be explained away.

Can Such a Seasonal Trading Strategy Be Valid?

Keep in mind that the phrase, “sell in May and go away,” is primarily used by technical traders who use this indicator by selling out in May then sitting on the sidelines for six months, either by moving their positions into bonds or holding it in cash. The distinction to make here is that these are professional traders, not investors. The Halloween strategy is a timing strategy; and most individual investors are not equipped to implement a timing strategy. In truth, returns can be high (or low) any time of year and unless you know precisely when each will happen, a generalized approach to timing is based more on luck than anything else. So, when it comes to determining equity allocations, the cardinal rules of investing are always a good bet: Focus on underlying fundamentals and remain in the market over time — regardless of the calendar, seasons, or holidays.

[To learn more about the Halloween strategy, please read The Truth About "Sell in May and Go Away."]

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