... there is a puzzle whether the stock market will continue its upward momentum or will fall to follow the seasonal pattern of the September effect anomaly. According to the efficient market hypothesis (EMH), the stock return should not be predictable and thus, the behavior of the stock returns inconsistent with the EMH is considered an “anomaly”.
Jeremy J. Siegel in his book “Stocks for the Long Run” shows that September is by far the worst moth of the year. Dow Jones Industrials has an average negative return of 1% for the period of 1885 to 2006. Furthermore, the September effect has not only prevailed until recently, but it has actually been stronger since 1990 with an average negative return of 1.5% from 1990 to 2006.
The poor returns in September also prevail in the rest of the world. September is the only month of the year that has negative returns in a value-weighted index. September has been the worst month in 17 of the 20 countries analyzed and all the major world indexes, including the EAFE Index and the Morgan Stanley all world index.
A dissertation presented by Hyung-Suk Choi from Georgia Institute of Technology in December 2008 mentions that the U.S. stock market return in September was negative 0.24 % over the last two hundred years, and it is the only month with the negative mean return. The September average return is significantly negative in 15 out of 18 developed countries over the whole sample period, which varies from 38 years to 208 years upon data availability. Moreover, the September return is negative in all 18 countries over the period 1970 to 2007.
