Turn-of-the-Month Anomaly in Stock Returns: Revisited

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This paper test for the existence of the turn-of-the-month (TOM) anomaly in stock returns and examines its economic importance by comparing a switching strategy, which utilizes the TOM effect, to a buy-and-hold for equities and risk-free investing. It investigates the TOM anomaly in the CRSP equal- and value-weighted indices for the 1963-2009 period. It also tests for the significance of the anomaly in Fama-French (FF) large and small size portfolios. Results for the CRSP equal- and value-weighted indices show statistically significant differences in returns between TOM and ROM. Results employing the FF 10 large and 10 small portfolios also support the existence of the TOM anomaly with the only exception being the FF 10 large portfolio for the sub-period of 1982-2009. Further, although buy-and-hold strategy seemingly outperforms the switching strategy for the CRSP equal-weighted and the FF 10 large portfolio in terms of annual compound return, the switching strategy earns abnormal return on a risk-adjusted basis.
FRM Project-Simon Fraser University
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