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Historical stock-return data were examined in a study called The Halloween Indicator: Everywhere and All the Time, and found that the November-to-April period generated average returns 4.5 per cent higher than the rest of the year.

Halloween can serve as an excuse not just to scare the neighbours, but also to build up equity exposure in portfolios that played it safe over the summer.

The "Halloween indicator" is the flip side to an enduring adage that cautions investors against betting heavily on stocks through the summer.

"Sell in May and go away" is the expression that encourages investors to avoid the historically weak six-month stretch between May and October. The corollary is the reinvestment of those sidelined funds in preparation for the fall and winter months, which have traditionally been fertile for equity returns.

"The next six months typically provide more big gains and fewer large losses than the last six months," said Brooke Thackray, a research analyst at Horizons ETFs (Canada) Inc.

This summer, Canadian and U.S. stock markets generally rewarded those who limited their exposure in the spring. But investors who followed this seasonal principle too rigidly may have missed out on a revival of North American equities over the past month. This year, Halloween came a little late.

"Currently, short-term momentum indicators show that North American equity markets are overbought," said Don Vialoux, a Canadian market technician. "Preferred strategy is to wait for a short-term pullback in equity markets in November to accumulate favoured stocks and ETFs."

Over a longer time frame, however, the Halloween indicator deserves serious consideration.

A landmark 2012 study, titled The Halloween Indicator: Everywhere and All the Time, examined the full register of historical stock-return data for 108 countries, finding the November-to-April period generated average returns 4.5 per cent higher than the rest of the year.

"Over all, our evidence suggests that the Halloween effect is a strong market anomaly that has strengthened rather than weakened in the recent years," the authors said. Over the past 50 years, the return differential rose to 6.3 per cent on average.

An opportunistic seasonal trading strategy over a five-year time horizon would have beaten the market 80 per cent of the time, according to the study. Over a 10-year time frame, the rate of success would have risen to 90 per cent.

One possible explanation for the anomaly is stock trading tends to thin out in the warmer months. Another possible contributing factor is the early-year optimism that tends to inflate analysts' earnings expectations. By the spring, profit forecasts start to come down.

Investors looking to take advantage of seasonal anomalies, however, should understand the possible variation in any single year of a trend observed in average across many years.

And while Halloween is a handy annual marker, the optimal date to buy Canadian and U.S. equities has actually been Oct. 27, Mr. Vialoux said. Over the past 60 years, an investment of $10,000 would have grown to about $850,000 by buying the S&P 500 index on Oct. 27 and selling on May 5 each year, he said. That same investment would have declined to less than $7,000 if the S&P 500 was bought and held through the opposite six-month period.

In any given year, however, the seasonal bottom can vary by as much as one month, Mr. Vialoux explained. This year, both Canadian and U.S. equities bottomed out on Sept. 28, and have posted gains of 4.2 per cent and 10.5 per cent, respectively, since the close on that day. Investors waiting for Halloween to get back into the market would have missed out on those gains.

But retail investors should not liquidate their entire equity portfolios through the summer, Mr. Thackray said. Instead, May might be the right time to take some profits, raise a bit of cash and increase exposure to sectors that tend to outperform in the summer, such as utilities and health care.

"It comes down to being more conservative in those six months, when the market has those bigger downdrafts," he said. For those investors, Halloween might be a good time to put that money back to work. Mr. Thackray said he looks for technical indicators to guide his sector weightings, which this year are focused on technology, consumer discretionary, industrials and Canadian banks.

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