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Thanksgiving Reversal?

It is the start of the holiday season in the US and Thanksgiving is fast approaching. In this post I wanted to see if there is anything interesting happening in the markets around this popular holiday, and to get better granularity I used the Nilsson Hedge daily CTA dataset that has recently become available on AlphaBot. 

While the dataset contains only about 60 programs at the moment, the benefits of having daily data make it a valuable analysis tool - after all, there are approximately 20 times more data points (after accounting for weekends and holidays) available with daily data than in a monthly set. After filtering for those programs that have returns available from 2011 we got 15 programs that were put into an equal weighted portfolio. Here are the programs:

Altegris Advisors Managed Futures 

AQR Capital Management AQR Managed Futures 

AQR Capital Management Multi-Asset 

Astor Astor Dynamic Allocation 

Dorsey Wright DWA Tactical 

Dunn Capital Management Managed Futures Strategy (Arrow) 

Equinox Fund Management MutualHedge Futures Strategy 

First Quadrant LP Global Risk Balanced Fund 

Gabelli Global Rising Income and Div 

GPS Sector Rotation Fund 

Guggenheim Investments Guggenheim Managed Futures Strategy 

Leuthold Core Investment 

Stadion Tactical Defensive 

Stadion Tactical Growth 

Templeton Global Currency 

Looking at the November performance of this portfolio since 2011 doesn't reveal anything unusual - on the surface, it's just another month in within a year with its historical ups and downs. If you can take anything away from the data below, it's that November is a relatively calm month - the best performing November was +2.59% in 2014 and the worst -0.52% in 2011.


Then I decided to look at the 10 days right before and after Thanksgiving to see if there is any kind of 'Thanksgiving Effect'. After all, it is a big holiday and many things can happen in the markets while traders are sharing a turkey dinner with their families! The result is simply remarkable. Whether a day of feasting makes people want to change their habits, or (re)connecting with their family leads to some (re)evaluation, I really don't know, but I do know that the average returns for this portfolio of CTAs 10 days immediately before and right after Thanksgiving are completely opposite with an 86% negative correlation. Interestingly, the same is true for the equities, with even stronger minus 95% correlation.


The scatter plots below show the data more clearly than the table.


I am pretty sure that at least some traders among us should be familiar with this effect and probably can shed some light on it. After all, the Black Friday sales have become a very important event for the economy and the stock market. At the same time, the strength of the reversal is amazing, probably suggesting that the expectations tend to be consistently wrong, and that is also amazing in itself. Out of curiosity, I am going to update my numbers for this upcoming Thanksgiving as soon as data becomes available and post an update. In the meantime, Happy Thanksgiving!

Dmitri Alexeev is Co-Founder of AlphaBot

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