October Effect – level 3

05-10-2020 07:00

The October Effect is a perceived market anomaly that stocks tend to fall in October.

If we go back in time, back into 1907, a financial crisis took place in the US over a three-week period starting in mid-October. During this time, the New York Stock Exchange fell almost 50% from its peak the previous year. October 24, 1929, was given the name Black Thursday, and it began the stock market crash, which is considered the worst economic event in world history. Similarly, on October 19, 1987, all major world markets experienced a sharp fall, which became known as Black Monday.

Is the October Effect real? Statistically, October is not any more significant than the other months, and the October effect tends to be overrated. In fact, September has more historical down months than October.

Difficult words: anomaly (something different from a common rule or form), stock market (a place where shares or parts of companies are traded), statistically significant (likely that something caused something else), overrated (considered to be better or more important than something really is).

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