Is There a Bias to End-of-Month Trading?

Are market returns superior at month's end, when institutions may put capital to work? I decided to take a look.

Specifically, I went back to late December, 2002 (N = 903 trading days) and examined returns from the last three days of the month and the first three days of the following month. These six day periods averaged a gain in the S&P 500 Index (SPY) of .15% (156 up, 102 down). That is stronger than the average one-day gain of .04% (494 up, 409 down) for the entire sample.

A look at the 2006 figures suggests that this outperformance has not fallen prey to changing cycles. Since late December, 2005, the average gain in SPY during the last three days of the month and first three days of the next month has averaged .11% (25 up, 17 down). That is stronger than the average one-day gain in SPY of .02% (75 up, 72 down) over that same period.

It does appear that, during the recent bull market, the ends and beginnings of months have been positively tinged. My calculations show that the first three days of the month have been particularly bullish, averaging a gain in SPY of .20% (77 up, 51 down) since 2003.