A Tax-Free Exploitation of the Turn-of-the-Month Effect: C.R.E.F.

Authors

  • William S. Compton Department of Marketing & Finance, Western Illinois University, Macomb, IL61455-1390.Fax:(309)298-2198
  • Robert A. Kunkel School of Business, Eastern Illinois University, Charleston, IL 61920-3099. Fax: (217) 581-6247

DOI:

https://doi.org/10.1016/S1057-0810(99)80010-9

Abstract

By applying knowledge of the "turn-of-the-month" effect investors will improve the risk-adjusted performance of their retirement accounts by using a simple and easily implemented "switching" strategy. Our exploitation of the turn-of-the-month anomaly achieves a 17.7 percent average annual rate of return by switching between a money market account and a broad market indexed stock account. This is compared to a 15.6 percent average annual rate achieved by simply buying and holding the stock account, or a 5.8 percent rate on the money market account. Additionally, volatility is cut in half and there are no tax consequences or transactions fees when the switching strategy is used within a retirement account. Our results suggests that this strategy might be suc- cessfully implemented, under current tax laws, in qualified retirement plans and in variable annuities.

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Published

1998-03-30

How to Cite

Compton, W. S., & Kunkel, R. A. (1998). A Tax-Free Exploitation of the Turn-of-the-Month Effect: C.R.E.F. Financial Services Review, 7(1), 11–23. https://doi.org/10.1016/S1057-0810(99)80010-9

Issue

Vol. 7 No. 1 (1998): Financial Services Review

Section

New Original Submission

License

Copyright (c) 1998 JAI Press Inc.

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