First trading day of the year

Ask your investment, budget, and other money related questions here
Post Reply
Lucky C
Posts: 755
Joined: Sat Apr 16, 2016 6:09 am

First trading day of the year

Post by Lucky C »

Since I had some daily S&P500 data from 1928-present and some free time on my hands, I was wondering if the first trading day of the year is much different than average trading days. Some difference wouldn't be surprising, both psychologically (optimism or speculation as to how this year will be different), as well as making rational portfolio changes.

1928-2019 all days of the year average return 0.029%, median 0.047%, standard deviation 1.19%
1928-2019 1st trading day of the year average 0.093%, median -0.034%, standard deviation 1.46%

So on a typical day throughout the year, you can expect a positive median return, but the average return is slightly lower than the median since the worst days in bear markets can cause bigger drops than the rises from the best days in bull markets (fat left tail distribution). However on the first of the month, the median has actually been negative while the average has been much more positive, and with a higher standard deviation than normal. Now this is < 100 data points so it's not great for making conclusions, but perhaps it shows that optimism in the new year causes the distribution of returns to flip so that there is more of a fat tail on the high side?

In the 21st century, the first trading day of the month has had a great record so far:

2000-2019 all days of the year average return 0.021%, median 0.053%, standard deviation 1.19%
2000-2019 1st trading day of the year average 0.422%, median 0.350%, standard deviation 1.61%

Though this is only 20 data points, it seems like strong pattern. Not sure if it can be attributed to optimism or if there are other factors that better explain it, like mutual or pension funds being forced to buy more stocks at the beginning of the year?

Anyway, good luck out there in 2020 and have a happy new year!

Post Reply