Can we find the same Santa Claus Rally in NIFTY as we do in the US?
We are approaching perhaps the strongest two/three weeks of the year: the Santa Claus Rally or the end of the year effect. We have previously covered this holiday effect in a separate article about the US Santa Claus Rally. Today we backtest to see if we can find a Santa Claus Rally in NIFTY.
We backtest the Santa Claus Rally in NIFTY
We did the following:
We downloaded the daily bars of the NIFTY 50 benchmark from Yahoo!finance. The index represents the weighted average of the 50 largest Indian companies. The index has, of course, derivatives contracts – both options and futures. The futures contract is one of the world’s most liquid.
The backtest was done like this:
- We go long at the close of the second Friday in December.
- We exit at the close of the first trading day of the new year.
We only had data back to December 2007 and thus the number of observations is a low 14.
If we invested 100 000 the first year and compounded by reinvesting 100% of the equity the following years, we get this equity curve:
It seems like the Santa Claus Rally in NIFTY is no myth.