The Santa Claus Rally In Emerging Markets (End Of Year Rally)

Last Updated on January 15, 2022 by Oddmund Groette

The Santa Claus Rally In Emerging Markets

One of the seasonal strongest periods is approaching: the Christmas holiday. The Santa Claus Rally or the end of the year effect has proven to show strong gains in the US markets and most of the Western stock exchanges. In general, the holiday effect is well documented and we covered the US Santa Claus Rally in a separate article. We also documented a Santa Claus Rally in NIFTY (India).

Is there a Santa Claus Rally in Emerging Markets?

To find out we did a backtest:

We backtest the Santa Claus Rally in Emerging Markets

We did the following:

To get a longer time frame in our backtest we used Fidelity’s Emerging Markets Fund as a proxy. The fund has daily quotes and can be downloaded from Yahoo!finance. The ticker code is FEMKX and has data back to 1990.

The backtest was done like this:

  1. We go long at the close of the second Friday in December.
  2. We exit at the close of the first trading day of the new year.

We invested 100 000 the first year and compounded by reinvesting 100% of the equity the following years. The backtest returned this equity curve:

The average gain per trade is 3.05%, the win ratio is 77%, the profit factor is 8, and the max drawdown is 7%.

We had 31 observations and it seems pretty obvious that we have a strong seasonal period in the form of the Santa Claus Rally in Emerging Markets. We can also call this the end of year effect.