Photo by Behnam Norouzi / Unsplash

Month of the year effect (MOY)

strategies Jun 23, 2021

These strategies enters in the market at the beginning of a month (1: January, 12: December) and close the position at the end of the same month (MOY) or at the end of a following month (MOY_multi).

For example:

  • MOY 1: opens the position at the first trading day of January and closes it at the last trading day of January.
  • MOY_multi 1_3: opens the position at the first trading day of January and closes it at the last trading day of March.

Literature review

In literature, research show anomalies in months of the year in multiple markets. Keloharju et al. , to evaluate MOY effect, did a regression on monthly return data from January 1963 to December 2016 of stocks listed on the NYSE, Amex and Nasdaq. By looking that the same-month coefficients they state that the same-month stock return is significantly predictive of future stock returns up to 20 years into the future.

The January effect
The January effect is a calendar anomaly reported in the financial markets wherein the returns in the month of January are higher than the returns during any other month of the year. Keim observed that in January tended to concentrate practically the entire excess return generated in the medium term by small caps compared to large stocks. And that the entire stock market, on average in January, has generated performances above the other months of the year.

Numerous studies done in the following years have validated the persistence of the January Effect over time, not only with reference to the US stock market, but also on other world stock markets . Although the presence of the January Effect is unanimously proven, there is no accepted interpretation on its causes.

Siegel, 2010 highlighted how the January Effect has significantly attenuated during the 90s, although it has not disappeared, only to reappear over the last decade.

September effect linked to the school calendar
September is one of the most evidenced months in literature, because it is the unique month in which mostly of the stock market indices have a negative average performance, on average 1.62% lower than other months returns. L.Fang in their paper “School Holidays and Stock Market Seasonality, linked the September effect to the post-school holidays, having found a strong link with negative equities performance. They have found that for some regions, in which schools start the new year in August, the September effect is shifted to August.

To demonstrate that they firstly found a local bias among investors: institutional investors use to own more local firms because they have, or believe to have, an information advantage on them. There are some States, countries where school does not start on September but starts in August, such as US southern states. So, for stocks headquartered in that southern states not September’s, but August returns are negative. To summarize their findings:

“The September effect is true for all “Western” and developed economies in the Northern Hemisphere and the differences are almost always significant. Averaged across all countries, September returns are 1.62% lower than other months’ returns. We note that August is also usually a low return month. As a comparison, January returns are, on average, 1.45% higher than other months.

Of the 47 countries analyzed, 37 are in the North Hemisphere September column is dominated by negative average returns. In fact, of the 37 Northern Hemisphere countries, 28 have average negative September returns. Looking at the global average, September is also the lowest return month with a negative return of − 0.03%, while all other months have positive averages.

But in US southern states (Georgia, Indiana, Nevada, Oklahoma, Tennessee, and Hawaii), the school holiday ends in early August. For stocks headquartered in these states, we find that it is August, rather than September, that exhibits particularly low returns. Returns during the months after major school holidays are 1.1% lower than other months with a t-stat of 9.61. This effect can be explained by investor inattention during school holidays because traders are more away from the market, either on vacation or in summer homes so they pay less attention to the market and are less likely to trade.

We noticed an investor local bias leaded by the fact that local institutional investors have an information advantage and, as such, their trading plays an important role in incorporating the information of local firms. In addition, we evidenced that low postschool holiday returns are driven by stocks that release negative news, and especially those that also experience light trading, during school holidays, due to investor inattention during school holidays resulting in news, and especially negative news, being incorporated more slowly into prices.

Prior research indicates that prices generally respond more slowly to negative news than positive news. And another discovery is that the postschool holiday effect is stronger among larger stocks and stocks with greater institutional holdings. Finally, we found that high-yield bond returns are 1.83% lower after school holidays than at other times.”

The US dollar pattern

US dollar tends to show weakness at the end of the year and strength at the beginning of the new year. The fact that the trend in the US dollar reverses precisely at the turn of the year already provides a strong hint regarding the reason for this seasonal pattern: it must be related to the end of the calendar year.

The question is: what happens at that point in time? It is the balance sheet date. The weakness in the US dollar at the end of the year is driven by US tax legislation. Many US-based companies save on their tax liabilities by reporting small amounts of cash at the balance sheet date at the end of the year. It can be worthwhile to shift money to the accounts of overseas subsidiaries.

The additional demand for foreign currencies affects the exchange rate, therefore the US dollar typically declines at the end of the year. After the turn of the year, the tide immediately turns because companies transfer sizable amounts back to the US.

In the tables below, there are the most relevant MOY statistics I found in forex crosses, computed respectively in December and in January. I evidenced in the table the rows involving USD: in red the bearish indications for USD and in green the bullish ones.

There are two strong negative evidence of a weak dollar in December with a p-value lower than 0.05 (so a score greater than 20).

In the January month table, there are three evidence of a strong USD. Below I inserted two charts showing the backtest of a speculation in EurUsd every December (left) and in every January (right) from 1971 to 2020.

Equity lines are steadily increasing since 70’s with a slowdown in the more recent years in the December’s equity. But in general, both equity lines have had a great historical stability, meaning that this phenomenon has been continuous during the last 50 years.

Precious metals demand in January

BullionVault is one of the world largest online investment service for physical precious metals. It reported that in this decade it has seen in January, 7 times out of 10 more new bullion investors than the monthly average, and that January was the very best month of the year 5 times.

Precious metals prices used to rise in the New Year: gold, and silver in the last 20 Januarys have both risen 14 times and Platinum 17 times. Gold consumers demand is important for the price dynamic and it use to peak during major countries holidays. China has become the 1stworld's gold consumer nation and demand in China peaks during the Chinese New Year, that occurs every year in a different date but always between January and February. In the next chart there are the seasonalities of precious metals from 1987 to 2020. I evidenced with a black circle the January’s average upward movement of all the four metals.

All metals have been strong, on average, in the last 34 years from the days before Christmas to mid-February, in correspondence to the Chinese New Year and St. Valentine Day. After that periods metal prices tended to significantly slow down the upward trend decrease.

January, as seen above, has been one of the most bullish months for precious metal prices, and also a bullish month for US dollar. Gold and silver are two assets negatively correlated to the Dollar Index.

The deduction is that precious metal priced in other currencies than USD, like Euro or Chf should have had a greater strength in January. In fact, the charts of the back-tests of XauUsd (left) and XauChf (right) in January confirms that: XauChf has been more bullish and stable than XauUsd.

In the following bullets, there are additional explanation given by some authors to explain the positive January for precious metals, but these explanations have not been confirmed with data:

  • In January, investors use to review their portfolio and they rebalance their holdings of bullion, equities, and bonds; in particular, wealth managers and private savers give more focus on potential risks to their money, so they choose to buy a little investment insurance for protection.
  • About both silver and platinum, they find most of their demand today from industrial use. Some automakers, chemical plants, pharmaceutical companies, and other manufacturers book their supplies for the coming year in January.

Month of the year effect - MT4 Expert Advisor

These strategies enters in the market at the beginning of a month (1: January, 12: December) and close the position at the end of the same month or at the end of a following month

Read more

To trade automatically this anomaly, you can purchase the "MOY Expert Advisor". The Expert Advisor needs the "Main EA and libraries" to work. If you have an active ForecastCycles membership, contact us to get 20% discount.


Andrea Ferrari

I deal with programming and finance, I lead the research and development of ForecastCycles. I strongly believe in seasonal analysis for financial markets