Common Factors in Return Seasonalities

2015 HONORABLE MENTION

Matti Keloharju, Ph.D., Juhani T. Linnainmaa, Ph.D., and Peter Nyberg, D.Sc.

A strategy that selects stocks based on their historical same-calendar-month returns earns an average return of 13% per year. We document similar return seasonalities in anomalies, commodities, international stock market indices, and at the daily frequency. The seasonalities overwhelm unconditional differences in expected returns. The correlations between different seasonality strategies are modest, suggesting that they emanate from different common factors. Our results suggest that seasonalities are not a distinct class of anomalies that requires an explanation of its own — rather, they are intertwined with other return anomalies through shared common factors. A theory that is able to explain the risks behind any common factor is thus likely able to explain a part of the seasonalities.

READ THE PAPER



  • The information contained herein is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.