ES Friday 12-15-17 : Hot Topic

Quarter End Markups

The Fund Managers mark up the markets at the end of the quarter - Fact or Fiction?

You may have heard the comments and quotes about quarter end markups in the markets or Quarter End Seasonality. Portfolio managers are about to put money to work and this will cause a price increase at the end of the quarter. (You also have the self-serving interests of portfolio managers wanting the performance to look good at quarter end because their bonuses and salaries are based on this.)

Is this true?

Fact or Fiction: Markets have a tendency to rise at the end of the quarter.

Well there's only one way to find out: Test it!

And that's what we did. The test wasn't elaborate or complicated and it only covered one market. We took daily data for the S&P500 cash index from 1 January 1970 through to 31 March 2006 (26 years and 3 months) and looked at the daily return from the close of one day to the next and then looked at the average return on the days around the quarter end and compared that return to the average daily return over the full 26 years.

Our results showed us this is indeed true - but only just. We found that the average daily return (for all days) during this period was 0.03% and that the average daily return around the quarter ends was 0.04%.

Because we had so much data we decided to break it down by decade and found the following results:

Decade Average Daily Returns Quarter End Daily Returns
1970 0.01% -0.01%
1980 0.05% +0.14%
1990 0.06% +0.05%
2000 0.00% -0.03%
All Decade Average 0.03% +0.04%

What do you notice that is interesting about these results? I think it's interesting that this strategy (or market behavior) worked very well in the 80s and perhaps it is the idea of this that is hanging on.

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