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An Anomaly within an Anomaly: The Halloween Effect in the Long-term Reversal Anomaly

Lee, King Fuei (2021): An Anomaly within an Anomaly: The Halloween Effect in the Long-term Reversal Anomaly. Forthcoming in: Applied Finance Letters , Vol. 2021, No. 10

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Abstract

In this study, we investigated the presence of the Halloween effect in the long-term reversal anomaly in the US. After examining the cross-sectional returns of loser-minus-winner portfolios formed on prior returns over the period of 1931–2021, we found evidence of stronger returns during winter months versus summer months. Specifically, the effect appeared to be driven by a significant winter-summer seasonality in the portfolio of small-capitalisation losers and a lack of the Halloween effect in the portfolio of large-capitalisation winners. This study’s results were found to be robust with respect to alternative measures of the long-term reversal effect, differing sub-periods, the inclusion of the January effect and outlier considerations, as well as regarding small- and large-sized companies.

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