Superior returns when compared to a buy-and-hold strategy

Assignment Help Financial Management

Reference no: EM13937246

The Halloween effect is about the popular saying ``sell in May and go away”, where it is believed that acquiring stocks (going long) on the last trading day in October), and selling those positions at the end of April produces superior returns when compared to a buy-and-hold strategy. Assume that Ann invested $1000 in the SP500 at the end of October 1999. Ann was an ``active’’ investor and followed the ``sell in May and go away” advice. At the end of each April she sold the stock and placed her money in a checking account until the end of October. The checking account pays 1% interest (for those 6 months). Then in the last trading day of October (right before market closing time) she reinvested back all her money into the SP 500. Bob invested $1000 in the SP500 at the end of October 1999. Bob was an ``passive’’ investor and let his money invested in the SP 500. How much money do Ann and Bob have at the end of October 2015? Based on these calculations, is there a Halloween effect in the SP 500 index?

Reference no: EM13937246

Questions Cloud

What is the value of a six-month european call option : A futures price is currently 100. At the end of six months it will be either 112 or 90. The risk-free interest rate is 5% per annum. What is the value of a six-month European call option with a strike price of 100?

The domestic and foreign risk-free interest rates : A currency is currently worth $1.80 and has a volatility of 15%. The domestic and foreign risk-free interest rates are 5% and 2%, respectively. Use a two-step binomial tree to value a) a European four-month put option with a strike price of $1.79, an..

Risk-free interest rate from now until options maturity date : You buy a share of stock, write a one-year call option with a strike price X = $28, and buy a one-year put option with a strike price X = $28. Your net initial cost to establish the entire portfolio is $26.70. What must be the risk-free interest rate..

What rate should firm use to discount project cash flows : Titan Mining Corporation has 8.6 million shares of common stock outstanding, 300,000 shares of 5 percent preferred stock outstanding and 160,000 7.4 percent semiannual bonds outstanding, par value $1,000 each. If the company is evaluating a new inves..

Superior returns when compared to a buy-and-hold strategy : The Halloween effect is about the popular saying ``sell in May and go away”, where it is believed that acquiring stocks (going long) on the last trading day in October), and selling those positions at the end of April produces superior returns when c..

What is the value of one-year put option with strike price : A stock price is currently $100. Over each of the next two six-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a one-year American put option w..

New gear assembly project : Olin Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1430 per unit; variable costs = $316 per unit; fixed costs = $3931656; quantity = 71456 units. Suppose the company believes all of its estimates are acc..

Derive the index price and option price binomial trees : A stock index is currently 2,500. Its volatility is 30%. The risk-free rate is 5% per annum (continuously compounded) for all maturities and the dividend yield on the index is 1%. Calculate values for u, d, and p when a six-month time step is used. W..

Current exchange rate : Suppose that there is an asset denominated in Chinese Yuans (Renminbi). Current exchange rate is 6 Renminbi per dollar. Price a tree that delivers 60 Renminbi worth of fruit every year forever with an interest rate of 15% assuming the exchange rate d..

User Account

All Pages