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'Sell in May and go away" or to put it another way, investors should take the summer off.

It's one of the tried-and-true maxims of the stock market that it's best to buy stocks in late October or early November and sell them in May.

This seasonality -- the outperformance of stocks in the late fall, winter and early spring -- seems to make little sense, but number crunchers stand by their statistics, which show that regular seasonal patterns in share prices are a fact.

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This week three researchers, including Lisa Kramer, a finance professor at the University of Toronto, released a paper that might provide an explanation for this well-known stock market behaviour.

In a study of nine markets around the world, Prof. Kramer and co-writers Mark Kamstra of the Atlanta Federal Reserve Bank and Maurice Levi of the University of British Columbia concluded that reduced levels of sunlight -- causing a seasonal depression known as seasonal affective disorder (SAD) -- helps explain negative effects on the stock market in the autumn, but a positive one during the winter.

People affected by seasonal depression or suffering from "winter blues" are more risk-averse when the days are shorter in the fall, but more willing to take bigger risks with their money and hold stocks when days start to lengthen in late December. The effect levels off beginning in late spring.

The article -- "Winter Blues: A SAD Stock Market Cycle" -- was originally published in the March issue of American Economic Review. The maximum effect of the mood swing occurs in late March and there is little enhancement during the late spring and summer, Ms. Kramer said.

Just as perplexing as the cause is even the existence of the trend. If there is a sure fire way to make money then, in theory, that successful pattern should attract enough adherents over time that it becomes a victim of its own success and disappear. At least that would be the argument of believers in the efficient market theory. Yet the seasonal trends stubbornly ignore the argument.

"There definitely is a stable seasonality in a lot of markets," said Michael Manford, an economist with Canaccord Capital Corp.

Running an assortment of data through the "X-12 seasonal adjustment program" from the U.S. Census Bureau, he found seasonal patterns for the Standard & Poor's 500-stock index and the 10-year bond yield.

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The S&P 500 tends to be strongest during March, April and May and weakest during February, September and October.

"It turns out the stock market has a lot of problems with October," Mr. Manford said. Seasonal adjustment patterns over the past 15 years show October numbers underperform the average performance by almost 5 per cent.

A study released last year by Banc of America Securities LLC in New York said that over the past 75 years, the S&P 500 has compounded at an average annual return, including dividends, of 10.8 per cent. However, if an investor had held the index only from November through April each year, then the annualized return would be about 13.6 per cent.

The yields on 10-year bonds tend to peak in May, exceeding the average by about 6 per cent.

"The charts should rattle your faith in the efficient markets hypothesis," Mr. Manford said. The worst test suggests that there is only a 1-per-cent chance that seasonality was not there, he said. "It's amazing, but [seasonality]is not something brand new."

Mr. Manford said that in theory, arbitragers in options markets should be able to take advantage of seasonal price discrepancies, but it would take a large trading program in order to reduce the cost of executing the strategy, which extends over a long period of time.

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The metals markets also have a strong seasonality aspect, said Raymond Goldie, a mining analyst with Salman Partners. The share price of metals and minerals companies tend to peak at the end of May. The tendency for copper firms is that the share prices peak at the end of June and nickel firms at the end of March, he said.

"The Canadian stock market on the whole tends to peak around the end of May," he said. "Maybe that's because of the heavy weight of resources in the Canadian market."

The share prices of retailers and merchandisers tend to peak in September, before the worries set in about just how strong the Christmas selling season will be. After the "nail-biting season" is over, the markets tend to recover in February when investors decide that "maybe things weren't that bad after all," Mr. Goldie said.

The oil and gas sector also has a quiet period between the winter heating season and the summer cooling season, said Peter Linder, senior energy strategist for DeltaOne Energy Fund LP. Natural gas prices tend to soften during the months around May, forming on the charts what is known as a "shoulder month," Mr. Linder said.

But Mr. Linder does not think that the natural gas prices this year will form that pattern. "I would argue against investors using that traditional approach," he said.

Although natural gas prices tend to weaken at this time of year, that has not happened so far this year and he doubts it will. There are record low levels of natural gas in storage in Canada and the United States, along with declining production and rising demand, Mr. Linder said. "I do not expect to see any weakening in next couple of months."

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Natural gas prices could rise as summer approaches and natural gas companies are just weeks away from reporting record-high first-quarter earnings, he said. "Most producers have clean balance sheets and they have the ability to buy properties without issuing equity," Mr. Linder said. There are up to $4-billion of properties up for sale, he said.

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