Using Market Map Model with “Sell in May”

The “Sell in May and Go Away” strategy, which entails the investor selling his or her stock holdings or index funds on the first trading day of May and entering back into the equity market on the first trading day of November (thus avoiding the “underperformance” of stocks vs. cash in the six-month period commencing in May and ending in October), has been a popular yet controversial strategy over the years (1). We commend the SIM strategy for employing a simple non-subjective empirical approach in its calculation and for using “fixed” dates for asset allocation changes, similar to the Market Map model.

This article examines the results of a study that we conducted which integrates the variables of the Market Map model with the the SIM strategy. For this study, we employ the “Risk” profiles that we presented in the previous post with the rule set as follows: allocate assets towards the S&P500 index on the first trading day in November and stay invested through the May-October period during years that fit the “Favorable Risk” profile. During years that fall in the “Favorable First 6 month”, “Neutral Risk”, or “High Risk” profiles, exit the S&P500 and allocate assets to cash on the first trading day in ay and allocate assets towards the S&P500 on the first trading day of the upcoming November.

The historical results and comparisons are shown in the tables below.

All Sell in May Signals using SP500 Index ( dividends excluded ):

Sell in May all 2 Sell in May all 1

Sell in May Using Market Map Model:

ScreenHunter_233 Nov. 01 13.19

Statistics:

ScreenHunter_234 Nov. 01 13.43

In observing the comparative results, we can see that a basic use of the Market Map model identifies May through October periods in which to stay invested and thus gain advantages ( transaction costs and tax considerations ), compared to the “fixed” Sell in May strategy. Further performance enhancements can be made using additional components of the Market Map model.

Sell in May with Market Map back to 1923 :

Sell in May with Map 1923 - 1 Sell in Maywith Map 1923 - 2

 

(1) “Sell in May and Go Away “Just Won’t Go Away S. Andrade, Chhaochharia, M Fuerst

Financial Analysts Journal  Volume 69 Number 4 2013
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