The Turn-of-the-Month Effect

If you added up all the stock market's gains over many decades but only counted the last trading day of each month plus the first three trading days of the next, you'd capture a disproportionate share of the total return — even though that window is only about a fifth of the trading days in a month. The rest of the month, on average, has contributed comparatively little. This is the turn-of-the-month effect, one of the most persistent calendar anomalies documented in equity markets across many countries and long time periods.

The leading explanation is mechanical rather than psychological: a huge amount of money — payroll contributions, pension fund allocations, mutual fund inflows — gets deposited and reinvested on a monthly cycle, much of it clustering right around month-end and the first days of the new month. That systematic buying pressure pushes prices up during this narrow window more reliably than chance would predict. Corporate accounting practices, like window-dressing by fund managers reporting month-end holdings, have also been suggested as contributing factors.

For example, a study of the S&P 500 might find that the average return across all trading days is 0.03% per day, but the average return specifically during the four-day turn-of-the-month window is 0.08% per day — nearly triple the ordinary rate — while the remaining days of the month average close to zero.