Hamptons Effect
Categories: Financial Theory
Labor Day Weekend is typically considered the last big weekend of summer, which is why many of us opt to spend it camping, barbecuing, sleeping, or doing other fun and leisurely things. Or, if we’re a ritzy Wall Street type, we might choose to forego the campgrounds and instead spend the weekend at our villa in the Hamptons, New York’s premier hoity-toity beachfront vacay spot.
So what does this mean for investors? Well, depending on which market sector we’re looking at, it can mean that we’ll see a little dip in investing right before the holiday weekend, as all those brokers prepare to take that final summer vacay. It also means that, in those same market sectors, we’ll probably see a jump in trade activity after the long weekend, when those same brokers head back to the office and resume working.
The Hamptons effect isn’t a sure enough thing to always hang our investment hats on, though. While the past several years have shown that some market sectors—looking at you, food stocks—seem to totally conform to the Hamptons effect, others do not. And even with food stocks, the changes in trading activity probably have less to do with the fact that brokers are heading to the Hamptons than they do with the fact that food stocks (and some utility stocks, FYI) tend to ebb and flow seasonally. And furthermore, an increase in trade activity doesn’t necessarily mean an increase in share price. It might, but there’s no guarantee.
So in other words...we as investors shouldn’t rely on the Hamptons effect to make all of our investing dreams come true. We should, just as we do throughout the year (hopefully), do our research and avoid basing our investment strategy on the vacation plans of Wall Street brokers.
Related or Semi-related Video
Finance: What are January Effect and San...3 Views
Finance allah shmoop what are the santa claus rally and
the january effect Well we actually attended a santa claus
rally last december the energy in the arena was off
the charts Who knew elves could be that loud Yeah
really Ok so in finance land a santa claus rally
is well something else it refers to a rally or
rise in stock prices during the month of december and
they don't even need magical reindeer Teo you know achieve
lift off Why december Because according to you our desk
calendar december is the last month of the year on
for a whole bunch of tax and accounting reasons there
are trades that need to happen before the end of
the calendar year like professional funds need to have a
certain minimum amount invested in the stock market rather than
holding cash or there was some huge hot stock that
they want to show that they at least own for
pa art of the year so they buy it in
december and all investors want to sell their losers either
for the tax loss or just because they don't want
those on their annual report that they owned a million
Shares of dog crap dot com so because everything is
better with acute see name attached well this onslaught of
activity has been termed the santa claus rally and generally
there is more buying than selling as optimism generally beats
pessimism this time of year So historically stocks have gone
up right around christmas All right so what about the
january effect Well because all the buying has bought up
the quote loose unquote shares in the market place or
rather the nervous nellies who kind of sort of wanted
to sell their shares have now sold them While there
simply isn't the supply of shares at lower prices available
for buyers to buy and so with the same demand
unless supply prices go up yeah eq on one first
week and to boot Yeah there's typically an increase in
stock prices after new year's which financial gurus have lovingly
named the january effect Or as mrs claus calls at 00:02:05.17 --> [endTime] santa's recovery period No