The purpose of this paper is to provide a plausible explanation for the “sell in May” anomaly observed in US stock markets. A heretofore unexplained strategy of selling stock in May and not returning to the market until November has been shown to outperform a simple strategy of buying and holding stock all year long.
The authors compare the seasonal performance of three US size-based portfolios for the May–October and November–April periods considering whether or not they were in years with US congressional elections, which occur every two years.
While the sell-in-May effect appears to persist in the long run, the authors find that the anomaly is not present in non-election years. There is no significant difference between the May–October and November–April stock returns in non-election years. The observed sell-in-May effect is driven by poor stock returns in the May–October periods leading up to US presidential or congressional elections and subsequent strong performance in the November–April periods immediately following elections.
The paper offers an election-year effect as an explanation of the sell-in-May anomaly that has been observed in the US stock market. Other possible explanations of the effect, such as seasonal affective disorder, the weather, and daylight savings time, have not gained widespread acceptance.
