You wouldn’t think seasonal patterns should matter much for stocks, but some patterns really are stupidly simple.
The folks at Bespoke have discovered that shares of Churchill Downs (CHDN), the racetrack where the Kentucky Derby is held each year have done consistently better in the week leading up to the Derby (which is this coming Saturday!), then in the week after:
We checked to see how the stock trades in the week before and after the Derby to see if it follows a “buy the rumour, sell the news” pattern. Interestingly, the average performance of the stock in the week before the Derby (Friday close to Friday close) has been 1.77%, while the average performance of the stock in the week after has been -1.32%. Investors who have bought the stock in anticipation of the event have done much better than those buying the stock after the event.
We calculated the return of a $100 investment in a Derby strategy that buys the stock in the week before the Derby and shorts the stock in the week after the Derby and found that it would now be worth $156.74 (or +56.74%) without commission costs. Historically, this stock strategy has probably been a lot better than betting the actual horses at the race!
Better, sure, but not as fun.
We’ll revisit the Derby again this week. But let’s start hearing your longshot favourites now. Got any sleeper names you like?
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