Summer Vacation and Cross-Sectional Stock Returns

The risk premium based on the cross sectional stock returns measured by a composite expected return signal displays closely similar winter vs. summer seasonal pattern as the market return does. We observe similar seasonal pattern for the signal component market value of equity, the book-to-market equity ratio, and total asset growth while less so for gross profitability. Our results are mostly consistent with the summer vacation argument of Bouman and Jacobsen (2002) and Jacobsen and Marquering (2008, 2009), which suggests that market wide risk aversion rises in summer and drops in winter due to seasonal variation in market participation. From the seasonality perspective, our findings support recent empirical asset pricing model of Fama and French (2014, 2015) that makes use of multiple factors based on the above signal components together with the market return simultaneously. We also provide further empirical seasonal regularity that an underlying pricing story to be developed would consider reconciling