Is Au-Ghost real? A data-driven analysis says “Maybe”
First, a quick background on the Ghost Month phenomenon before I start throwing ugly charts at you. PSE traders and analysts have long held that August is a terrible month on the market, though nobody is really able to point to why this might be the case. Sure, functionally, there is usually less buying and selling (liquidity), and a drop in liquidity is usually not a great sign in combination with the market’s perceived lack of conviction. But instead of trying to figure out which came first, the low liquidity or the weak conviction, I wanted to go back into the PSE’s history to figure out if August is actually the worst-performing month, or if it just has a really bad reputation. Spoiler alert: August sucks, but like most things in life, COVID has changed things a bit.
The data: My first step was to take the starting PSE value and ending PSE value for each month, starting with January 2012, and ending in July 2022. Then, I divided the difference between the two values by the month’s starting value to get the percentage change for the month. That’s it. Pretty straight forward.
The complication: Right away, the “stain” of COVID was visible. The single worst month in recent PSE history was March 2020, when the Duterte lockdowns were first announced, leading to a devastating 22% monthly drop. Before that, March had only ever been in the negatives once since 2012, back in 2018, when the PSE fell 6%. The next-worst monthly performance was a 9% loss, which was a tie between July of last year, and June of this year. That COVID Crash in March really skews the data. So, with that in mind, we’re going to look at this using a “COVID-in” and “COVID-out” approach, where for “COVID-in” we just take every month as it happened from January 2012 up till now, including COVID, and for “COVID-out” we remove everything COVID by only counting data from January 2012 up until the start of 2020.
COVID-in: August sucks, with an average 10-year loss of 0.7%, but March manages to suck even more, with an average loss of 1.1%. March is actually the worst-performing month, despite being negative only 4 times out of the last 10 years, as compared to August’s dismal 7 times out of the last 10 years. It was kind of surprising to me to see that October is actually, by far, the best-performing month, with a 10-year average gain of 2%. It was even weirder to see such performance sandwiched between November and September, the 3rd and 4th worst performing months, respectively. But the key thing here is what COVID did to March: before COVID, March was negative just once. Since COVID in 2020, March has been negative every year: -22% in 2020, -5% in 2021, and -1% in 2022. Ok, so if we take the COVID Years out, does August take its rightful place as the statistically-worst month of the year on the PSE?
COVID-out: Yes, without COVID, August sucks the most. Removing all of 2020 through 2022, August stands alone as the clear “worst” month, with the worst average return of -1.9%, and most number of times negative with 6. Free from the ravages of COVID, March bounces all the way up to the second-best performing month, with an average return of 2%, and only one instance of negative returns. Messing with the timeline doesn’t work so well for October, though, which falls from “best returning month” to just middle-of-the-pack. The best month, in the pre-COVID data, is January with an average return of 3.8%, followed by March (2.0%) and July (1.9%). July looks positively safe, with zero negative months in its 10-year dataset.
Is Au-GHOST real? Yes, but as with most things in life, there’s some nuance there that complicates things. Clearly, whether COVID-in or COVID-out, August just kind of sucks. It’s near the bottom of the table for monthly returns in either dataset, and finishes at the top of the table in both for the number of times it gave a negative monthly return. That said, the historical pattern of monthly returns has clearly shifted thanks to COVID and the waves of loss and rebound that we’ve seen roll through our market multiple times since the first days of the pandemic. Before COVID, there was probably a pretty good argument to be made that November was just as bad as August, and that its stealth poor performance was actually somehow worse for being less obvious. Since COVID, it’s clear that March (so far) has been the new August.
MB BOTTOM-LINE
While March has shown some real promise to challenge August for the title of “Worst PSE Month of the Year”, it remains to be seen if the perception of August as a poor performer will continue to drive that poor performance, or if the disruption of COVID will somehow erase that feeling over time.
Perhaps August’s “brand” is just too powerful. It has a catchy, punny name (Au-Ghost) that ties in with a rich context of lore.
Comparatively, March and November are just anonymous poor performers with none of that world-class branding.
All that aside it’s hard to ignore that there is simply a lack of focus on the market in August.
As some have pointed out, it’s maybe not so much of a coincidence that interest in our market drops as North American fund managers step away from their desks to go on summer vacation.
Maybe, in that way, August is actually the best month. Not from a liquidity, performance, or interest perspective, but from a mental health one where traders are given the excuse to close those 40 open tabs of charts and news and take a short break.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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