New Research Predicts Stock Returns by the Calendar
Research Highlighted by Top Media

New research from Smith School associate finance professor Steve Heston finds seasonal predictability in stock returns. The research garnered recent media attention first profiled in a column in the New York Times, then an interview on CNBCs Closing Bell program.

The research, forthcoming in the Journal of Financial Economics, charted stock returns over each calendar month, rather than over an entire year or a period of several months. Heston and co-researcher Ronnie Sadka, currently at the University of Chicago, found that stocks with high historical returns in a particular calendar month tend to have high future returns in that same calendar month. If a stock did well one February or July or October, for example, it tended to do well in February, July or October of future years. This monthly seasonal effect held true for 20 years. And it didn't matter what industry Heston looked at, how big the company was or when it published its earnings report. In every case, buying or selling stock based on its performance in that same month the previous year was a winning strategy.

Heston says you can use his research to your advantage when investing it provides the keys to deciding what to sell when. Though he says its not economical to rebalance your portfolio every month because of trading fees, the research conclusions can provide an advantage when timing when to buy or sell stock.

Find out more about the surprising research results:

CNBC Closing Bell Nov. 30, 2007

New York Times Nov. 18, 2007