The Halloween Effect: How Spooky Season can be Good for your Portfolio 

It’s approaching that time of the year, where people from all over the world over dress up in their favourite supernatural costumes to celebrate Halloween. 

Although some would describe this as the scariest time of the year, some traders look at it as a major opportunity to benefit from seasonal trends that have seen risk assets outperform historically from the 31st of October (Halloween) to the following May. 

This effect is commonly referred to as the “Halloween Effect” or “Halloween Strategy”. 

Halloween Effect Origin Story 

The Halloween Effect, or Halloween Strategy, is believed to have originated back in 16th century England and piggybacks on another rather famous investing adage – “Sell in May and go away”. 

The story goes that the privileged class, those who could afford to own assets, would leave the city and head to the country-side to holiday over the summer months in the northern hemisphere, ignoring the day-to-day oscillations of their respective portfolios. 

They would then return at the end of October to reopen their positions and once again begin to actively invest in the stock market. 

This led many to believe that risk assets generally underperform during the six months from May to the end of October, and outperform from November until the following April. Of course, this theory sounds plausible in theory but does it actually hold firm in practice? 

Does the Halloween Strategy Work?

There have been several research studies conducted to assess whether such a trend in financial markets exists. 

One of the most well-known studies was conducted by Sven Bouman and Ben Jacobsen, and was titled “The Halloween Indicator, ‘Sell in May and Go Away’: Another Puzzle”. 

In this compelling study, the researchers were able to document that market returns throughout the November to April period appeared to be significantly higher than those recorded in the May to October period. Interestingly, they also discovered that this trend was not isolated to just the UK or US markets, but was displayed in 36 of the 37 developed and emerging markets they studied. 

Another study conducted by Jacobsen in partnership with Cherry Zhang reinforced these findings, showing that returns during winter in the northern hemisphere were an average of 4.5% higher than the returns accumulated during the summer months. 

Both these studies seem to confirm that there is indeed some truth to the Halloween Effect. But has it held true in recent years? 

Example of the S&P 500 in Halloween Effect months

S&P 500 “Halloween Effect” Months Highlighted in Red

Chart prepared by Daniel Moss, created with Tradingview   

The chart above shows how the S&P 500 has performed since 2005, with the “bullish” Halloween Effect months highlighted in red. As we can see, it is hardly a foregone conclusion that equities will outperform in these months given the significant downturns seen in 2007, 2008, 2018, 2020 and 2021. 

Therefore, although there is a slew of historical research appearing to confirm this historical trend, it doesn’t necessarily mean that this relationship will hold indefinitely into the future.

 With that in mind, traders should remain cautious and adhere to both fundamental and technical analysis to determine trading opportunities, whilst keeping the Halloween Effect in the back of their minds. 

Start Trading CFDs with Vantage

Vantage gives traders the ability to trade over 1,000 CFDs, such as Forex, Gold, Indices, Energy, Stocks, Cryptocurrencies and more with leverage of up to 30:1. With competitive spreads, traders can go long and short five days a week, to take advantage of any opportunities you may be presented with.
You can open your live trading account in less than five minutes to start trading. Vantage also provides a free demo account. This will allow you to practice various trading strategies and techniques without having to deploy your own capital.