The Memorial Day Holiday Effect In Trading (Backtest)

Last Updated on June 19, 2022 by Quantified Trading

The Memorial Day holiday is one of the federal holidays in the US. How does it affect trading in the US financial markets?

The US financial markets do not open on Memorial Day because it is a federal holiday. Trading does not take place on any of the U.S. stock exchanges on that day, and on the Friday preceding it, the bond market closes early. Backtests conclude that there is no seasonal effect around Memorial Day.

The Memorial Day holiday

Memorial Day is a national holiday in the US in honor of the men and women who died while serving in the U.S. military. It originated in the years following the Civil War and was originally known as Decoration Day.

Many Americans observe the holiday by visiting cemeteries or memorials, holding family gatherings, and participating in parades. Unofficially, Memorial Day marks the beginning of the summer season.

When is it?

Memorial Day is observed on the last Monday of May every year. The Memorial Day observance of 2022 took place on Monday, May 30, while that of 2023 will take place on Monday, May 30.

Why do we celebrate it?

The Memorial Day holiday was originally created to honor U.S. men and women who died during the Civil War. The war, which ended in the spring of 1865, claimed more lives than any conflict in U.S. history and required the establishment of the country’s first national cemeteries. Now, the holiday also honors American soldiers who died in other wars, as well as other Americans who died in service to their nation.

When did we start celebrating it?

The Memorial Day observance originated during the American Civil War when citizens placed flowers on the graves of those who had been killed in battle. By the late 1860s, Americans in various towns and cities had begun holding springtime tributes to these countless fallen soldiers, but it was not until 1971 that Memorial Day became an official federal holiday.

Is it a nontrading day?

Yes, it is a nontrading day. Trading does not take place on the New York Stock Exchange or Nasdaq on Memorial Day, and the bond market closes early on the Friday preceding it.

The Memorial Day holiday effect (backtest)

Memorial Day, the day to honor the men and women who died while serving in the US military, is always on the last Monday of May.

Let’s test the following hypothesis:

  • We go long at the close the Wednesday prior to Memorial Day.
  • We exit at the close on the first trading day of June.

In SPY the Amibroker equity curve looks like this:

The Memorial Day holiday effect in tradingThe chart clearly indicates the effect is small to non-existent. There are 29 trades, the average gain is 0.18%, the win ratio is 59%, the profit factor is 1.17, and the max drawdown is 5%.

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