Equity · United States · stocks · Semi-yearly · United States Free

Halloween Effect During the Mid-Term Election Year

Academic paper

No Matter the Winning Presidential Candidate, Buying at Halloween and Selling in Mayy Has Been Attractive for Equities in Pre-Election Years, with the Opposite for Treasuries

AuthorsKam Fong Chan; Terry A. Marsh

Institute

Research Network (United States)
University of Western Australia
?Financial Research Network (FIRN)
?The University of Western Australia
?Quantal International Inc

Paper linkhttps://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2903067

Strategy in a nutshell

The strategy invests in Dow Jones stocks during mid-term election years, buying in December and holding until April, while remaining capital stays in cash. It leverages historically favorable returns in this election-cycle period.

Economic rationale

Higher returns during this period are linked to economic policy uncertainty, which peaks after mid-term elections. Other factors like volatility, production cycles, and psychological effects play a minor role, with EPU trends being the main driver.

Backtest performance

Annualised return13.24%

Beta0.109

Sortino ratio-0.232

Win rate67%

Full Python code

1from pandas.tseries.offsets import BDay
2from AlgorithmImports import *
3class HalloweenEffectCombinedWithElectinCycle(QCAlgorithm):
4def initialize(self) -> None:
5self.set_start_date(1999, 1, 1)
6self.set_cash(100_000)
7
8self.market: Symbol = self.add_equity("SPY", Resolution.DAILY).symbol
9self.cash: Symbol = self.add_equity("SHY", Resolution.DAILY).symbol
10
11self.current_year: int = -1
12self.count_years: int = 1 # At the start of this strategy it will increase this value by one.
13def on_data(self, slice: Slice) -> None:
14if self.current_year != self.time.year:
15    self.current_year = self.time.year
16    self.count_years += 1
17
18# The investor buys these stocks at the beginning of December and holds them until the end of April.
19if self.count_years == 2 and self.time.month == 12 and not self.portfolio.invested:
20    self.set_holdings(self.market, 0.5)
21    self.set_holdings(self.cash, 0.5)
22    self.count_years = 0
23    
24# Holds them until the end of April.   
25if (self.time.date() + BDay(1)).month == 5 and self.portfolio.invested:
26    self.liquidate()