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Januarys in the Stock Market

Posted By James Bianco On January 8, 2013 @ 8:30 am In Markets,Think Tank | Comments Disabled

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MarketWatch.comHow special is January? [2]
Commentary: How different is January than other months?
January’s historical record provides a textbook illustration of the need to distinguish between patterns that impress statisticians and those that are big enough to actually impress investors. That’s because, in at least two respects, January does play a unique role in the stock market calendar — from a purely statistical point of view. Yet a different conclusion is reached when asking what’s actually worth betting your portfolio upon. The increased returns that an investor can expect to earn by playing these odds are so modest as to be easily swamped by other factors, making it doubtful that it’s worth basing your bets on those odds. As a result, perhaps the best New Year’s resolution that investors can make for 2013 is to never forget this distinction between statistical and investment significance. Consider first the notion that the stock market tends to perform especially well in January. There certainly is statistical support for this notion: Since the late 1800s, when the Dow Jones Industrial Average DJIA +2.35% was created, it has gained ground in 63% of the Januarys. The comparable proportion for all other months of the calendar. in contrast, is 57%. Largely on the strength of these increased odds, the average January gain for the Dow since the late 1800s has been 0.9%, in contrast to 0.6% for all non-January months.

 

Source: Bianco Research [3]


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[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/01/bianco-january.jpg

[2] How special is January?: http://www.marketwatch.com/story/how-special-is-january-2013-01-02

[3] Bianco Research: http://www.arborresearch.com/bianco/?p=71372

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