George Washington Day/President’s Day Holiday Effect in Trading – Backtesting and Strategy
George Washington’s Day/Presidents’ Day is a federal holiday in the US. But does it affect the US stock market?
The US financial markets do not open on George Washington’s Day or Presidents’ Day. Trading does not take place on any of the U.S. stock exchanges. Backtests determine that trading around this holiday is pretty random.
Please click here if you are interested in reading many more seasonal trading patterns, and here if you are interested in backtesting trading strategies.
What is George Washington Day/Presidents’ Day holiday?
Presidents’ Day is a federal holiday in the United States, officially known as Washington’s Day. It is celebrated on the third Monday in February to honor George Washington and Abraham Lincoln. Sometimes, the holiday is taken as a celebration of the birthdays and lives of all U.S. presidents.
Why do we celebrate it?
Presidents’ Day is celebrated to honor the birthdays of both George Washington (February 22) and Abraham Lincoln (February 12). The third Monday in February is chosen because it falls between the two birthdays, and it offers workers a long weekend of rest.
When did we start celebrating it?
Presidents’ Day celebration started in the 1800s. After George Washington’s death in 1799, his birthday (February 22) became a perennial day of remembrance. But it remained an unofficial observance until 1879, when President Rutherford B. Hayes signed it into law.
The holiday initially only applied to the District of Columbia but was expanded to the whole country in 1885. In 1968, Congress passed the Uniform Monday Holiday Bill, which moved a number of federal holidays to Mondays, and the third Monday of February was chosen to celebrate Washington and Lincoln.
Is George Washington Day/Presidents’ Day a nontrading day?
George Washington Day is a non-trading day – markets are closed. Trading does not take place on the New York Stock Exchange or Nasdaq until those exchanges reopen on Tuesday, following the three-day break — weekend and Presidents’ Day on Monday.
George Washington Day/President’s Day holiday effect (backtest)
The second holiday of the year is President’s Day, officially called Washington’s Birthday, and is always on the third Monday in February. As with Martin Luther King Day, the February holiday falls between the calendar days 15 to 21.
Let’s backtest some trading ideas to look at facts and statistics:
The first backtest has the following trading rules:
- We go at the close of the Thursday before the holiday; and
- We sell the next day on Friday (hold for one day).
For SPY, the ETF that tracks S&P 500, we get the following equity curve:
The average gain per trade is a negative 0.15% but rather erratic so not an edge on a short strategy.
Let’s make a second backtest:
- We go at the close of the Friday before the holiday; and
- We sell the next trading day on Tuesday after the holiday (hold for one trading day).
We get the following equity curve:
Just like in January, the first trading day after the holiday is a week one. The average gain per trade is -0.3% and the win rate is 48%.
We also backtested the performance the days after the holiday, and they are on average flat to negative.
FAQ:
Why do we celebrate Presidents’ Day?
Presidents’ Day is celebrated to honor the birthdays of both George Washington (February 22) and Abraham Lincoln (February 12). It provides workers with a long weekend of rest. Presidents’ Day is the federal holiday celebrated on the third Monday in February.
Is Presidents’ Day a nontrading day in the US?
Yes, Presidents’ Day is non-trading in the US. The financial markets close for the celebration, and trading resumes on the following Tuesday after the three-day break. The celebration of Presidents’ Day started in the 1800s and became an official observance in 1879 when President Rutherford B. Hayes signed it into law.
Is there a Presidents’ Day holiday effect in the stock market?
The backtest indicates that the holiday effect is absent in February. There are 29 trades, the average gain is -0.24%, the win ratio is 52%, the profit factor is 0.77, and the max drawdown is 9%. Other holiday effects in the US markets include Martin Luther King Jr. Day, Easter, Memorial Day, 4th of July, Labor Day, Thanksgiving and Black Friday, and the End-of-the-Year Rally in Stocks.