# Halloween Strategy: What It Means, How It Works

![Halloween decorations including lit-up ghosts and pumpkins appear outside a home in California.](https://www.investopedia.com/thmb/qZcQ1CHlpFEMowgLLqJbzpYGIR4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1236242162-73cfe19f1750461cb22bb6885283927d.jpg)

*— Robyn Beck / Getty Images*

> **Definition**
>
> The Halloween strategy refers to the investing theory that stocks perform better from Oct. 31 to May 1 than the rest of the year.

The Halloween strategy is a [market timing](https://www.investopedia.com/terms/m/markettiming.asp) strategy. It is based on the hypothesis that stocks perform better from Oct. 31 (Halloween) to May 1 than the rest of the year. The Halloween strategy posits that it is prudent to buy stocks in November, hold them through the winter months, and sell them in April while investing in other [asset classes](https://www.investopedia.com/terms/a/assetclasses.asp) from May through October.  

### Key Takeaways

*   The Halloween strategy suggests that investors should be fully invested in stocks from November through April, and out of stocks from May through October.
*   Variations of this strategy and its accompanying axioms have been around for more than a century.
*   There is evidence that this strategy does perform well over several years, but no one has offered a satisfactory explanation for why it works.
*   The Halloween indicator is fascinating for the reason that it is an empirical anomaly as well as a mystery.

## Understanding the Halloween Strategy

The Halloween strategy aims to capitalize on gains by timing the stock market. It refers to a tactic where investors buy stocks in November and sell them in April. Investors who subscribe to this theory typically choose [defensive stocks](https://www.investopedia.com/terms/d/defensivestock.asp) and assets after they've sold their stocks, which is during the summer months.

The idea that investors can time the market is contrary to the [buy-and-hold](https://www.investopedia.com/terms/b/buyandhold.asp) strategy, in which an investor may ride out down months and invest for the longer term. The superior results seem to contradict the premise of the [efficient market hypothesis](https://www.investopedia.com/articles/basics/04/022004.asp) and that stocks behave in a completely random manner.

This strategy is closely related to the oft-repeated advice to [sell in May and go away](https://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp). Some variation of this strategy has been around for quite a long time. The axiom that was often coined in [financial media](https://www.investopedia.com/articles/markets/111315/top-6-apps-financial-news.asp) was also repeated over the last two centuries, and its longer version was some variation of these words: Sell in May, go away, come again, St. Leger Day.  

> **Important**
>
> The Halloween strategy is also referred to as the Halloween effect or Halloween indicator.

## History of the Halloween Strategy

Many believe that the notion of abandoning stocks every May began in the United Kingdom, where the wealthy class would leave London and head to their country estates for the summer, largely ignoring their investment [portfolios](https://www.investopedia.com/terms/p/portfolio.asp), only to return in September.

Those who subscribe to this notion would likely expect that it is common for salesmen, [traders](https://www.investopedia.com/terms/t/trader.asp), [brokers](https://www.investopedia.com/terms/b/broker.asp), [equity analysts](https://www.investopedia.com/articles/professionals/120415/career-advice-financial-analyst-vsequity-analyst.asp), and others in the investment community to leave their metropolitan financial centers in summer in favor of oases like the Hamptons in New York, Nantucket in Massachusetts, and their equivalents elsewhere.

Sven Bouman and Ben Jacobsen published a paper in the _American Economic Review_ that specifically studied the [performance of stocks](https://www.investopedia.com/articles/investing/011416/how-evaluate-stock-performance.asp) during the period from November to April and dubbed this the Halloween Indicator. In their observation, an investor who uses the Halloween strategy to be fully invested for one six-month period and out of the market for the other six months of the year would theoretically reap the best part of an annual return, but with just half the [exposure](https://www.investopedia.com/terms/m/marketexposure.asp) of someone who invests in stocks year-round.  

> **Fast Fact**
>
> Some who subscribe to the Halloween strategy advise investors not to invest at all during the summer months.

## Halloween Strategy Performance

The Halloween strategy does have evidence worthy of consideration. Historical [stock](https://www.investopedia.com/terms/s/stock.asp) returns suggest that the premise of the Halloween strategy has been mostly true—that the months from November through April have provided investors with stronger [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) than the other months of the year.

Results also show that selling in May is successful in beating the market more than 80% of the time when this strategy is used over a five-year horizon. It is more than 90% successful in beating the market when used over a 10-year time frame.

In some cases, the difference in performance can be significant. For example, between 1972 and 1996, investors using the Halloween strategy would have seen returns of nearly 120% compared to roughly 20% for investors who chose to buy and hold throughout that entire period.

The graph below displays the Halloween effect for U.S. stocks for the comparable periods from 1970 to 2017 and 1991 to 2017. It indicates that the return on the [Standard & Poor’s 500 (S&P 500)](https://www.investopedia.com/terms/s/sp500.asp) is much higher from November through April than it is from May through October.

![Halloween Effect](https://www.investopedia.com/thmb/6rRMqRUIjFHrj4Ptf45AbVDR70I=/1401x0/filters:no_upscale():max_bytes(150000):strip_icc()/halloween-5bfd6cea46e0fb002645076f)

**

## Evidence Against the Halloween Strategy

Though there is evidence for the Halloween strategy, there is also debate over whether it is real. Some studies have indicated that the strategy might not be as clear-cut as it seems.

For example, researchers Edwin Maberly and Raylene Pierce argued that previous studies of the Halloween Strategy were affected by two major outliers: the 1987 [Black Monday crash](https://www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp), which fell in mid-October of that year, and the [Long-Term Capital Management](https://www.investopedia.com/terms/l/longtermcapital.asp) hedge fund collapse, which had such a large impact on the market that the federal government had to step in to avert a financial crisis.

Growing awareness of the Halloween strategy could also become an argument against its future effectiveness. According to the [efficient market hypothesis](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp), as this phenomenon becomes better known, its effects will be priced into the market, making the strategy ineffective.  

## What Causes the Halloween Effect?

There isn't a conclusive reason for this seasonal anomaly. While many market watchers believe that investment professionals' summer vacations impact market [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) or that investors’ aversion to [risk](https://www.investopedia.com/terms/r/risk.asp) during the summer months is at least partly responsible for the difference in seasonal returns, these notions assume that increased participation means increased gains.

However, market crashes and similar investing disasters have had high levels of participation. Therefore, increased participation may have some correlation with gains, but it is not likely to cause the gains. Proximity to trading resources is not likely to be an explanation either, as [electronic trading](https://www.investopedia.com/articles/investing/110713/basics-mechanics-behind-electronic-trading.asp) allows investors all around the world to participate as easily from the beach as from the boardroom.

There is no dearth of theories to support whatever one wants to believe about the Halloween strategy. For as many different opinions as there are about the Halloween effect, there is an equal number of theories to support those opinions. The Halloween strategy is fascinating for the very reason that it is both an empirical anomaly and a mystery.

## Other Examples of Calendar Anomalies

The Halloween Strategy is just one example of a calendar-based market anomaly.

For example, the [January Effect](https://www.investopedia.com/terms/j/januaryeffect.asp) refers to a seasonal rise in stock prices during the first month of the year. Some argue the effect is a result of investors selling off securities at the end of the year and then repurchasing the stocks in January. Others argue it's a result of investors using year-end cash bonuses to buy investments in the new year. But it's worth noting that the rise in stock prices in January has historically been modest; an analysis by LPL Research found that since 1950, the S&P 500 has gained 1% on average in January.

The [Santa Claus Rally](https://www.investopedia.com/terms/s/santaclauseffect.asp) refers to an increase in stock prices that tends to occur around Dec. 25— either in the week leading up to the holiday or beginning Christmas Day through early January. Studies show that a Santa Clause rally occurs roughly 80% of the time, resulting in growth in the S&P 500 during the final five trading days of the year and the first two trading days of the new year.

One explanation for the rally is institutional investors taking vacations, leaving the market to more bullish retail investors. Others posit that the general optimism of the holidays helps lead to an increase in stock prices.

## Does Spending Money on Halloween Have an Effect on the Economy?

Yes, Halloween spending [affects the economy](https://www.investopedia.com/ask/answers/102714/how-does-halloween-affect-economy.asp). According to the National Retail Federation, Americans planned to spend $11.6 billion on Halloween in 2024, a slight decrease from the previous year. The organization expected spending to reach $104 per individual in 2024 across various segments like costumes, candy, decorations, and party supplies.

## Is the Halloween Effect Real?

Some variation of the Halloween strategy has been around and in use by investors for a long time. Some analysis of historical performance supports the strategy, but others argue that outlier events, such as major market crashes, which have ocurred between May and October, contribute to the apparently better performance of the market between October and May.

## Does the Halloween Investing Strategy Outperform Buy and Hold?

Historical stock returns suggest that using the Halloween strategy has provided investors with stronger capital gains than other months of the year. Selling in May is also considered an effective strategy, providing gains more than 80% of the time over five years and 90% of the time over 10 years.  

## The Bottom Line

The Halloween strategy suggests that investors should buy stocks in November and hold them until April when it's time to sell them off. Although research shows that there is some truth to the theory, investors should remember that it's just that—a theory. Whether you call it the Halloween strategy, Halloween effect, or Halloween indicator, do your due diligence and research before adopting any investment strategy.

> **Article Sources**
>
> 1.  Bouman, Sven, and Ben Jacobsen. “[The Halloween Indicator, 'Sell in May and Go Away': Another Puzzle](https://www.jstor.org/stable/3083268).” _The American Economic Review,_ vol. 92, no 5, December 2002, pp. 1618-1635.
>     
> 2.  Bouman, Sven, and Ben Jacobsen. “[The Halloween Indicator, 'Sell in May and Go Away': Another Puzzle](https://www.jstor.org/stable/3083268).” _The American Economic Review,_ vol. 92, no 5, December 2002, pp. 1618.
>     
> 3.  American Economic Association. "[Paranormal stock activity](https://www.aeaweb.org/research/charts/halloween-spirits)."
>     
> 4.  Econ Journal Watch. "[Stock Market Efficiency Withstands another Challenge: Solving the 'Sell in May/Buy after Halloween' Puzzle](https://econjwatch.org/File+download/24/2004-04-maberlypierce-com.pdf?mimetype=pdf)."
>     
> 5.  LPL Financial. "[January Seasonality: Have Returns Been Pulled Forward?](https://www.lpl.com/research/blog/january-seasonality-have-returns-been-pulled-forward.html)"
>     
> 6.  Stock Trader’s Almanac. “[Santa Claus Rally Results: January Indicator Trifecta 1 for 1](https://www.stocktradersalmanac.com/Alert/20220104.aspx)."
>     
> 7.  Jeffrey A. Hirsch. “[The Little Book of Stock Market Cycles](https://books.google.com/books?hl=en&lr=&id=udDabUbOlrIC&oi=fnd&pg=PR9&dq=yale+hirsch+santa+claus+rally&ots=OzY_Og64Gx&sig=DHC9712TxahSEAtNH-SYPLRcLCU#v=onepage&q&f=false),” Page 136. John Wiley & Sons, 2012.
>     
> 8.  National Retail Federation. "[Retail Holiday and Seasonal Trends: Halloween](https://nrf.com/research-insights/holiday-data-and-trends/halloween)."