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The rise in the indexes will last until the end of "Santa Rally"
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Loading...Does the "Santa Claus Rally" really exist? Some market pundits have noted that the seven-day period from Christmas through Jan. 3 has unusually high returns in the stock market. Srinivas Nippani of Texas A&M University-Commerce, Ken Washer from Creighton University and I studied the Santa Claus rally around the globe.
What we found is that the Santa Claus rally is indeed present in both Christian-based countries and non-Christian based countries around the globe. Specifically, returns are higher for that seven-day period than the average of other seven-day periods during the year. This is not a U.S.-based phenomenon; the consistency across the globe is startling. The returns over the Santa Claus rally period are greater than returns in the non-Santa Claus rally period for all 16 countries that we studied: U.S., Canada, Mexico, Brazil, UK, Germany, France, Australia/NZ, Japan, Hong Kong, China, Singapore, India, Indonesia, Taiwan and South Korea.
The magnitude of the Santa Claus rally is not inconsequential. For the U.S. S&P 500, since 1950, the return advantage over the holiday period versus the non-holiday period is about 17 basis points per day (0.17 percent). After transactions costs, a $10,000 investment in the S&P 500 would have generated about a $100 profit advantage over the non-holiday period on average.
The consistency is illustrated by the fact that, since 1950, the percentage of positive days during the Santa Claus rally period for the S&P 500 was 62.3 percent. For context, the percentage of positive days for the entire year since 1950 was only 52.9 percent.
The research also shows that the Santa Claus rally period exhibits less risk, as there is a lower standard deviation of returns during that period. In addition, there are more extreme returns that are "good" and fewer extreme returns that are "bad." And, as we know in investments, higher return and lower risk is "The Holy Grail."
Varchev Traders
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