[dustcoin]

This analysis is only looking at the price of the S&P 500, not the total return. An investor that sits out half of the year will miss out on about half of the dividends paid, which are always positive.

EDIT: Here is a graph highlighting how important including dividends is: https://i.imgur.com/YZSq6K3.png

Another consideration is taxes. The short-term gains produced by selling after 6 months are taxed at normal income rates (or slightly higher), as is the interest from the "risk free" interest-paying investment held the other 6 months. Long-term capital gains and dividends are taxed at favorable rates.

[jcdavis]

Thank You!

Its ridiculous how many of the timing/tactical strategies ignore these factors because of the complexity, even though they introduce massive drag vs buy & hold.

With the amount of data available, we should be able to do these sorts of backtests fairly accurately. At some point I hope I can compile a bunch of open prices/distribution data sets for people to use. You can easily get, for instance, daily close and distributions for VFINX (Vanguard's S&P 500 fund) back to 1980, but its not neatly compiled anywhere. Trickier is classifying distributions (dividend/LCG/SCG), but again all the required data exists (Sadly it means manually trawling through Edgar)

[zhte415]

In case you're unaware, or someone reading this is, have a trawl through the MSCI [1] and FT websites [2] for detailed pricing data.

[1] http://www.msci.com/ [2] http://www.ftse.com/

If you're interested in getting hold of historic tick data you could go to a data provider (for a price) or perhaps more convenient would be to see if you could get access to a Bloomberg terminal.

Academics that research this area, especially questions of policy and market efficiency of both market pricing and funds, can be extremely open about their work, and are often keen to share.

[tunesmith]

Aren't dividends figured in to the historical prices anyway, though? Via adjusted closing prices?

[mortehu]

There are several versions of the S&P 500. The version used here is the price index, which doesn't include dividends. The total return index, ^SPXTR[1], does account for dividends.

https://ycharts.com/indices/%5ESPXTR/level

[jcdavis]

In theory, but look at the dataset (https://github.com/AgoraOpus/Sell-in-May/blob/master/resourc...) and the adjusted close is the same.

[fonosip]

The taxes issue could be solved in a fund that implements the strategy.

There is another advantage: during 6 months of the year you have 0 risk.

[brc]

0 equity risk. You're still running currency risk with whatever currency you're holding in.

[codebolt]

But that difference is diminished when you also take into account that you would be earning interest on your capital in the period you were out of the markets (e.g. through a savings account or short-term bonds).

[dustcoin]

They are already factoring that in, using a 5% risk-free rate.