What is Calendar Effect?

Legal Definition
A calendar effect is any market anomaly or economic effect which appears to be related to the calendar. Such effects include the apparently different behaviour of stock markets on different days of the week, different times of the month, and different times of year (seasonal tendencies). The term sometimes includes multi-year effects, such as the 10-year (decadal) cycle, or the 4-year U.S. presidential election cycle. It also sometimes includes time of day effects.

Examples include:

  • Sell in May principle (or Halloween indicator)
  • January effect
  • January barometer
  • Mark Twain effect
  • Monday effect
  • Weekend effect
  • Turn-of-the-Month effect

In their 2001 paper Dangers of data mining: The case of calendar effects in stock returns (Journal of Econometrics), Sullivan et al. argue that there is no statistically significant evidence for calendar effects in the stock market, and that all such patterns are the result of data dredging.

Market prices are often subject to seasonal tendencies because the availability and demand for an item is not constant throughout the year. For example, natural gas prices often rise in the winter because that commodity is in demand as a heating fuel. In the summer, when the demand for heat is lower, prices typically fall. However, futures prices will have these effects priced in and so it should not be possible to make money by exploiting the seasonality.

Seasonal patterns are not confined to prices; many other systems can exhibit the same kind of calendar effect. However, the term is most often used in an economic context.
-- Wikipedia
Legal Definition
Describes the tendency of stocks to perform differently at different times. For example, a number of researchers have documented that historically, returns tend to be higher in January compared to other months.