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The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies by Leonard Zacks

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Chapter 9

Seasonal Anomalies

Constantine Dzhabarov and William T. Ziemba1

Seasonality of stock markets has a long history despite the academic research being dominated by efficient market theory as surveyed by Fama (1970, 1991). Small firm effects were popularized by University of Chicago students Banz (1981), Reinganum (1981), Blume and Stambaugh (1983), Roll (1983), and Ritter (1988) among others.

Early surveys are in Lakonishok and Smidt (1988), Thaler (1992), and Ziemba (1994). The latter references considerable regularity of various seasonal anomalies in Japan as well as in the U.S. Jacobs and Levy (1988a, b, and c) have used seasonal and fundamental factor model derived anomalies to create a multibillion-dollar investment firm. Dimson (1988) and Keim and Ziemba (2000) present whole books with studies across the world. The Stock Trader's Almanac discusses some such anomalies in yearly updates; see Hirsch and Hirsch (2011).

Anomalies of the seasonal variety as discussed in this chapter and in Keim and Ziemba (2000) are not fully accepted nor believed by many strong efficient market theorists. Part of this dismissal is that the anomalies are too small to be bothered with as Ross (2005) argues. So, more or less, does Fama (1970, 1991). The well-known book A Random Walk Down Wall Street (Malkiel 2011) even states that strong effects like the January effect do not exist.

There also is the serious issue of data mining since many published results are in sample and do not include ...

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