Is “Sell in May and Go Away” a Valid Strategy for U.S. Equity Allocation?

Abstract

This article examines the so-called “sell in May” strategy that has been referred to in the popular press for more than 40 years, and which Bouman and Jacobsen [2002] support with statistical evidence for multiple countries. The “sell in May” anomaly not only conflicts with the efficient market hypothesis, it also has important implications for investors trying to exploit calendar time anomalies. The authors examine whether “sell in May” is in fact a calendar time anomaly that can lead to a successful asset allocation strategy for major U.S. stock indexes. By analyzing the cumulative wealth produced by this strategy and a buy-and-hold strategy over a 30-year period, the authors find that regardless of the statistical evidence supporting this anomaly for countries around the world, the success of an implementable “sell in May” asset allocation strategy depends heavily upon the time period examined. If investors choose to use such a strategy, they should understand why it may or may not be successful.