by Matti Keloharju, Aalto University,
and Juhani T. Linnainmaa, University of Chicago - Booth School of Business,
and Peter M. Nyberg, Aalto University
February 25, 2013
Fama-Miller Working Paper
Chicago Booth Research Paper No. 13-15
Abstract:
Well-diversified portfolios of stocks formed by either characteristics or factor loadings have relatively high or low returns every year in the same calendar month. These common seasonalities account for at least 80% of the seasonalities in individual stock returns. The source of seasonalities matters: a trading strategy that tries to profit from seasonalities in individual stock returns is necessarily exposed to common return factors. We develop a model in which seemingly firm-specific seasonalities emerge from stocks amplifying and aggregating small seasonalities in common factors. We demonstrate that this mechanism is a pervasive feature of asset returns at monthly and daily frequencies.
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