Common Factors in Return Seasonalities
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.
We thank John Cochrane, Anders Löflund, Mark Grinblatt, Chris Hansen, Steven Heston (discussant), Maria Kasch (discussant), Jon Lewellen (discussant), Toby Moskowitz, Stefan Nagel, Lubos Pastor, Tapio Pekkala, Ruy Ribeiro, Ken Singleton, and Rob Stambaugh for insights that benefited this paper, seminar participants at Aalto University, Chinese University of Hong Kong, City University of Hong Kong, Deakin University, Hong Kong Polytechnic University, Hong Kong University, INSEAD, Lancaster University, LaTrobe University, Luxemburg School of Finance, Maastricht University, Monash University, Nanyang University of Technology, National University of Singapore, Singapore Management University, University of Arizona, University of Chicago, University of Houston, University of Illinois at Chicago, University of Melbourne, University of New South Wales, University of Sydney, University of Technology in Sydney, and conference participants at 2013 FSU SunTrust Beach Conference, Financial Research Association 2013 meetings, and 2014 European Finance Association Meetings for valuable comments, and Yongning Wang for invaluable research assistance. Earlier versions of this paper were circulated under the titles "Common Factors in Stock Market Seasonalities" and "The Sum of All Seasonalities." The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.