As October once more looms large on the horizon we will be subjected to more idiocy about the siren like properties of this month and the pitfalls it holds for traders I thought I would offer up some facts.
The first question that needs to be answered is October really that bad for investors and the quick answer is NO. The graphs below look at the average monthly return for a series of markets dating back to 1983.
As you can see in Western markets September is actually the worst month for average returns. Whereas the Nikkei displays an interesting seasonality of being ordinary during the middle of the year and quite good at the beginning.
Of more interest to me is the variance you can get in returns for various periods.
Whilst October is not the worst month it is certainly the most exciting for traders/investors with some nice large swings. In the part the size of the October outlier is due to the data picking up October 1987. When I move the data forward five years and exclude 1987 I get the following.
October still displays a fair degree of variability but the range has been cut dramatically. In part I wonder if this volatility is not self induced by the investing community at large in a strange the sky is falling way. There is an expectation that October will be bad/volatile therefore market participants subconsciously generate behaviours that make this a reality.