Just to share this paper with you guys. Looks interesting :)
It is surprising how little attention academic literature has devoted
to understand equity market returns around the turn of the month,
despite the observations of Lakonishok and Smidt (1988) and McConnell
and Xu (2008) among others that most of the returns accrue during a
four-day period, from the last trading day to the third trading day of
We find that the market returns are abnormally high also on the three
days before the turn of the month.
In fact, combining the two observations, we find that since 1926, one
could have held the S&P 500 index for only seven business days a month
and pocketed almost the entire market return with forty percent lower
volatility compared to a buy and hold strategy.
Since 1987, all of the positive equity returns have accrued during
these seven trading days, and the average returns during the rest of
the month have been negative. Odgen (1990) relates the high returns at
the beginning of the month to the monthly payment cycle – the fact
that large part of investors’ cash receipts are obtained on the last
or the first business day of the month. Our findings lend additional
support to this hypothesis.
In "Dash for Cash: Month-End Liquidity Needs and the Predictability of
Stock Returns" -working paper we explore the turn of the month
phenomenon further and discover new, previously unidentified patterns
in equity returns.