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 What happens to your body when you give up sugar?
- 2 Tourist films plane's descent just metres above packed Caribbean beach
- 3 World Book Day: Boy 'excluded' from school after dressing up as Fifty Shades' Christian Grey
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 GamerGate: developer Tim Schafer provokes rage with joke about online gaming activists at industry awards
Harrison Ford plane crash: Actor will make full recovery thanks to 'beautifully executed' landing
Tourist films plane's descent just metres above packed Caribbean beach
Oxford whistleblower's attempt to protect young victim of a sadistic gang went unheeded
How Homer Simpson discovered the Higgs boson over a decade before scientists
The 'sex selfie stick' lets you FaceTime the inside of a vagina
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Durham Free School: 'Creationism taught at' free school facing closure
End of the licence fee: BBC to back radical overhaul of how it is funded
Elif Shafak: Turkish author warns against rise of British nationalism
Ex-head of MI6: 'We shouldn't kid ourselves that Russia is on a path to democracy'
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
iJobs Money & Business
£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£8 per hour: Recruitment Genius: This Pension Specialist was established early...
£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...