Trade on sunny days and on Fridays. What are stock market anomalies

Trade on sunny days and on Fridays. What are stock market anomalies

There are many anomalies in the stock market, knowledge of which can be useful to an investor. We analyze the most interesting in more detail.

📖Stock market anomalies are patterns that generate excess returns and are not explained by existing market theories.
It is worth remembering that the number of articles that refute the existence of anomalies and the number of articles that confirm them are approximately equal. And the efficient market hypothesis is still neither confirmed nor refuted. Therefore, to believe in the effects or not is up to you.

There are more anomalies than there are companies in the S&P 500 index, but they can be divided into four types.

👌Calendar anomalies
“Sell in May and go away, come back again on St Leger’s Day” is a trading saying that demonstrates calendar anomalies. Translated as: “Sell in May and go away, come back on the day of St. Ledger races.” By the way, they are held on the tenth of September.
Interestingly, some of the anomalies contradict each other. So, the saying above describes the effect of the beginning of the year: the highest profitability is observed in the first months. Other studies claim the opposite: November and December are the most profitable. The authors attribute the effect to the payment of dividends for 3 quarters and attempts to predict the pre-New Year rally.
Economists also compared returns on different days of the week. It turned out that in most countries, the minimum profitability is observed on Monday, and the maximum — on Friday. Most likely, this is due to the mood of people, which is worse at the beginning of the working week and improves towards the weekend. The holiday effect is similarly obtained.
👌Price anomalies
The most applicable in life, because they take into account the typical mistakes of investors. Here’s one: stocks with a low P/E return are “outperforming the market.” And this is not surprising, because such a coefficient indicates the undervaluation of securities. You can say that this is not an anomaly, but the rule, and you will be partially right! Anything that cannot be explained using existing theories is called anomalies. In this case, the anomaly has become a rule of thumb, and this is absolutely normal.
Another anomaly has to do with small-cap stocks, whose stocks often perform well.
👌Weather anomalies
Do you believe that the return on sunny days is higher than on cloudy ones? Perhaps this was the case before: in sunny weather, people’s mood, and with it the propensity to take risks, is higher. However, with the development of the Internet, this anomaly is a thing of the past. For example, shares on the Moscow Exchange are traded not only by Muscovites, and the weather in all regions is different.
It has also been observed that returns on new moon days are higher than on full moon days. This fact is directly related to hypotheses about the change in people’s behavior during the full moon.
👌Technical anomalies
Yes, yes, the possibility of using technical analysis is also an anomaly. Any successful quote prediction based on past prices is an anomaly.
👌Main
So what does an investor need to know about anomalies?
❕ Any patterns in the stock market that cannot be theoretically explained are called anomalies.
❕ When investing, you can pay attention to price anomalies, because they rely on the psychology of people and are performed more often than others.
❕No anomaly happens 100% of the time, so it is important to consider other factors when selecting assets.

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