Researchers solve the mystery of seasonal share price surges
Saturday 03 January 1998
At last a researcher has come up with an answer to this question that allows economists to cling to their view that stock market behaviour, as revealed by share prices, is always totally rational. It is that traders are reacting to underlying information that itself has a pronounced seasonal pattern.
In a paper in the recent edition of the Economic Journal, Richard Priestley from the Norwegian School of Management confirms that the prices of UK shares usually rise in December, January and April, and by more than would be expected given the movements in the kind of economic statistics such as output, prices and the money supply that normally move the stock market. The US stock market, too, has a tendency to rise in January.
This was certainly true for the FTSE 100 index this December. It has climbed 304 points, or 6 per cent, in the latest month. The Dow Jones Industrials index in the US had a weaker month, advancing by just over 1 per cent.
Figures for the rest of 1997 also broadly confirm with the pattern. January saw a 4.8 per cent rise, although this was outweighed by an 8.9 per cent surge in September on the back of increasing optimism Britain would enter the European single currency sooner rather than later, and a 6.6 per cent uplift in July. April saw a 2.9 per cent rise.
But author Richard Priestley finds that the seasonality in share price returns is caused by the increased uncertainty about these statistics in the three months in question.
In December and January the extra uncertainty concerns the pattern of demand and production in the economy over Christmas and the new year sales period. Sales at this time can set the tone for the whole year and have unusually important implications for the level of business activity.
He writes: "Announcements of the level of economic activity ... around this period provide important information regarding the performance of the economy and subsequent levels of activity in the coming year. This has general implications for the health of the economy and specifically for firms' cash flows."
Mr Priestley speculates that in April, unexpected tax changes could be the cause of the extra uncertainty.
Whatever the reason, the economics profession's "efficient markets hypothesis" appears safe. The higher the risk, the higher the return, just as the theory would predict.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...