Halloween Effect and Equity Mutual Funds in Thailand

Abstract

This paper investigates one of the most famous seasonal anomalies, namely Halloween effect. It is based on the observation that return during November to April so-called winter period tend to perform better than return during May to October so-called summer period. Using a sample of 97 Thailand equity funds during 2012-2021, we extend previous research by focusing on the Halloween effect in mutual funds market. Our research consists of three main objectives. First, we investigate the existence of Halloween effect in Thailand equity mutual funds. Second, we look into different characteristics of funds by categorizing based on categories from Morningstar database. As different types of funds may have different strengths of Halloween effect, we further examine the presence of Halloween effect in 6 groups of 11 different types of characteristics includes different market capitalization, book-to-market ratio, investment style of active and passive and sectors. Then, we create trading strategies which based on the different strength of Halloween effect by investing in a funds characteristic with the highest Halloween effect during winter and a funds characteristic with no or less Halloween effect during summer months and compare with the benchmark of buy-and-hold strategy. Third, we generate modified momentum strategy, which is to long loser portfolio in winter, and long winner portfolio and short loser portfolio in summer and investigate whether it outperforms conventional momentum long-short strategy.

Consistent with Kenourgios and Samios (2021), our results show that Halloween effect exists in equity mutual funds with significant positive winter months return. We provide evidence of a robust Halloween effect in every characteristic except for growth funds. Our findings also show that size of Halloween effect varies across different characteristics of mutual funds similar to Arendas et al. (2018) and Jacobsen and Visaltanachoti (2009). Halloween effect is stronger for passive funds than active funds. One possible explanation is fund manager who acknowledge this phenomenon create their own strategy of what to invest during each period. Kenourgios and Samios (2021) suggests that fund managers increase their equity exposure during May to October. We also show that the investment based on rotation strategy and modified momentum strategy is profitable and outperform their benchmark. The rotation strategy of investing largevalue/midsmallvalue funds and passive/active funds generate a positive and significant abnormal return.