“Sell in May and Go Away” is an old Wall Street saying. The investment communities use this phrase in their conversations and it is also used in the media. There are also some other popular adages in the market like “January Effect” – an increase in buying activities following the December drop, “Holiday Effect” - it is a tendency to gain on the final trading day before a holiday, “Monday Effect” – the intra-week pattern where the stock price decline in the first trading day of the week, and so on. These proverbs have been used by the generations. There might have been some reliability with the meaning and the impacts of these phrases in the real life which need to be tested before implementing such ideas in the decision making.
The stock exchange in Nepal is relatively a new mechanism has a history of less than three decades whereas the world has been practicing stock exchanges for more than four centuries. We have many things to learn – the practices to the procedures from the pioneering stock exchanges.
Each stock market has its own unique behaviors, dynamics, and the past performances. Due to the selective differences of the market participants, the behavior of one stock market never matches with another. Stock markets are unique by its nature. A suitable strategy for one market might not be suitable to the other. The advanced stock markets offer a full range of investment alternatives and they employed the state of art technologies which makes trades possible in our figure tips. Some of the latest technologies available in the stock market are: Zero-commission or the free trading platforms, algorithm based high-speed automated trading, the use of robots and robotics, etc.
As we know, NEPSE has been testing its first full-fledged online trading platform. We are expecting the implementation of a new technology would help to decentralize and to democratize the market in Nepal.
S&P 500 (Aug '11 - Jul '18)
NEPSE (Aug '11 - Jul '18)
In 8 years
In a year
1st Trading Day of the Week (Wk-TD 1)
2nd Trading Day of the Week (Wk-TD 2)
3rd Trading Day of the Week (Wk-TD 3)
4th Trading Day of the Week (Wk-TD 4)
5th Trading Day of the Week (Wk-TD 5)
Total period - 8 years
Closed in a year (average)
Above, we present a comparison of the trading days (counts) between the S&P 500 and NEPSE. The observation shows that the US stock market remains open on an average 20 days more than NEPSE in a year. Also, the US stock market has longer trading hours (i.e. Monday to Friday, 9:30 am to 4 pm) plus the extended hours trading whereas NEPSE open 11 am to 3 pm from Sunday to Thursday only. The differences in these two stock exchanges’ opening hours can be justified by their number of listed stocks and the number of share outstanding along with number of participating investors.
With regards to daily percentage returns, the maximum one day decline was recorded as 6.7 percent vs. 5.1 percent respectively in S&P and NEPSE respectively during 2011 to 2018. Similarly, the highest one day percentage gain in S&P was 4.7 percent vs. 6 percent in NEPSE for the same period. These numbers give some ideas that the S&P 500 has more one day percentage decline than NEPSE whereas NEPSE has more one day percentage gain than S&P 500. Based on this observation, we could say that making higher daily returns might be possible in NEPSE in comparison with S&P 500. There could be many reasoning behind this daily returns behaviors which is an issue of further analysis.
In the graphical presentation below, there are some incidents where the daily returns are higher than +/- 5 percent. In S&P 500, none of the spikes after 2011 has touched the 5 percent lines in both directions. But, In NEPSE, 5 percent ups and downs are relatively a common phenomenon. There are so many instances where NEPSE has moved up and down more than 5 percentages which indicate that there are more short-term opportunities in NEPSE than S&P 500.
The Best Day of the Week to Sell/Buy Stocks:
More than 140 years of Dow Jones index data indicates that Monday is the worst day of the week to the existing stockholders as the prices of their holdings decline compare to the other trading days in the week.
The best trading day of the week to buy stocks is the 1st trading day in a week i.e. Monday in S&P 500 and Sunday in NEPSE based on the analysis of average daily returns for the period Aug 2011 to July 2018.
Similarly, the best price performance of the week or the best day to sell stocks is the 2nd trading day of the week for S&P 500 stocks i.e. Tuesday whereas the 5th trading day of the week for NEPSE i.e. Thursday. This indicates that S&P 500 and NEPSE exhibit the dissimilar behavior in buying and selling opportunities.
Based on these evidences, any investors can make their trading strategies to make profits by buying on Monday and selling them on Tuesday followed by Friday for the investors who trades the S&P 500 stocks. But, in NEPSE, traders can make the profits by buying on Sunday and selling them on Thursday followed by Wednesday.
(Disclaimer: Please note that these are not the specific investing suggestions for you to make profits, these are the analysis of the stock market behavior based on the data available in last 8 years for both markets. Do not make your investment decisions solely based on these conclusions. Investing involves risk, the risk of losing your MONEY!! Always consult with your investment advisors before making an investing decision. Invest at your own risk. This article and the analysis are for the educational and the awareness purpose ONLY)
In one of our previous research paper, we had concluded that the last 3 years of historical data can be used for analyzing the future stock price movements. Based on that insight, we have taken NEPSE data for last 3 years and form the chart below. This also indicates that the Sunday effect is more pronounced compare with the whole period data. Again, the last 3 years data further concludes that the best day of the week to buy stocks is on Sunday and the best day of the week to sell stocks is on Thursday followed by Wednesday in NEPSE.
Many investors believe that the cyclical patterns prevail in the stock market. There are many stock market adages which describe the patterns and the seasonality. But, finding an accurate predictable pattern and a precise prediction of the future stock price movements are impossible. In another study (https://www.sharesansar.com/newsdetail/confirmation-of-buying-in-january-and-selling-in-december-an-evidence-from-sp-500-and-nepse-20-years), we have proposed buying in January and selling in December to make positive investment returns. However, the analysis of NEPSE intra-week stock market index behavior provides the guidance that Sunday is the best day to buy and Thursday is the best day to sell to make quick weekly gains in the Nepalese stock market. The same conclusion has been re-confirmed by the short period - 3 years data.
For your information, in our articles, we include the analysis of the US stock markets and its comparison with NEPSE aiming to provide some insights about the leading stock exchange in the world and to make local investment communities awareness about the practices in the advance stock markets.
(* The author is a Gold medalist in M. Phil in Management with specialization in Finance in 2012, Tribhuvan University. The opinion presented in the article is personal. You can reach to the author at firstname.lastname@example.org)