Mark Twain Smart Beta Portfolio

Story:

"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."

- Mark Twain in Pudd'nhead Wilson

October Effect is a hypothesis while I was doing data exploration before literature research. I have never heard of it until I searched it in Google. Seasonality effects have never been my research target until I started to read articles in behavior finance and social organizational behavior. Therefore, I decided to have a research demo around the topic to see what I can find.

Instead of typical statistical research, in this demo, four smart beta annual equity portfolios, based on momentum and book-to-market ratio, were constructed to examine the impact of October Effect. The momentum portfolio construction process is slightly different from the usual momentum portfolio you might meet in finance literature.

Result:

Figure 1. Cumulative Returns of Mark Twain Smart Beta Portfolios

Figure 2. Performance Data of Mark Twain Smart Beta Portfolios