Monthly excess returns seasonally reversed
factor.formula
1-year monthly excess return seasonal reversal:
2-5 year monthly excess returns seasonal reversal:
In the formula:
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The current month indicates the month in which the factor is calculated.
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1 to 11 months before the current month, representing the time window used in the 1-year factor calculation, excluding months that are the same as the current month.
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Indicates the lag time window used in the calculation of the 2-5 year factor. When calculating this factor, data with a lag of 2 to 5 years are used.
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When calculating the mean, exclude the data of the same month as the current month and only use the data of other months. For example, if it is December, the December returns of all historical years will be excluded when calculating the mean.
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The stock's monthly return minus the market or benchmark return in the corresponding month is used to measure the stock's excess performance relative to the market in the current month. The calculation formula is: stock monthly return - market monthly return.
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Refers to the arithmetic mean of monthly excess returns within a specified time window, excluding the calendar months in the same period.
factor.explanation
The monthly excess return seasonal reversal factor exploits the monthly reversal effect of stock returns, that is, there is a negative correlation between the excess returns of a specific month in the past (excluding the same period) and the excess returns of the future month. For example, if the excess returns in the past 1-11 months (excluding December last year) are high, it indicates that the excess returns in the next month (December) may be low, and vice versa. This phenomenon may be due to investors' overreaction in a specific month or the trading behavior of institutional investors in a specific month, causing stock prices to deviate from their equilibrium level, thereby producing a reversal effect. This factor takes into account different time windows, such as 1 year and 2-5 years, to capture seasonal reversal patterns on different time scales.