We argue that the Jacobsen and Visaltanachoti (2009) study is incomplete. Jacobsen and Visaltanachoti (2009) evaluate the Halloween effect or ‘Sell in May’-effect as documented by Bouman and Jacobsen (2002), and extend the analysis into the relative performances of sectors during the winter and summer period. First, Jacobsen and Visaltanachoti (2009) do not mention the optimism cycle hypothesis in their list of possible behavioral explanations for the well known seasonal pattern. Next, their documented sector rotation strategy looks strongly like Doeswijk (2005). By withholding a reference to Doeswijk (2005), they miss the opportunity to give a possible explanation for the seasonality in relative sector performances. Doeswijk (2005) suggests a link between the seasonal sector rotation strategy and a cycle in investors’ optimism.

Keywords: Halloween effect, Sell in May, sector rotation strategy, tactical sector allocation, optimism cycle hypothesis

Continue reading here.