Welcome to the Year of the Monkey. If you work in Asian banking, especially if your job is linked to the region’s volatile equity markets, you may be hoping that the next 12 months bring you better luck than the previous 12.
In the Year of the Goat, Asian finance staff were butted by banks (Standard Chartered, Barclays, Deutsche Bank, BNP Paribas, CLSA, Nomura, CIMB and Jefferies) culling jobs in their under-performing Asian equities teams.
Will the Monkey be kinder? Especially for equities traders and salespeople? To speculatively answer this question, you could perform a dry analysis of various macro and micro-economic trends, drawing on your deep understanding of cash equities. Alternatively, if you’re a fan of the Zodiac, you could look at how stocks have performed in other Monkey years over history.
Janice Phoeng and Laurens Swinkels of the Erasmus School of Economics have done the latter. In a new research paper, they’ve calculated average US ‘equity factor returns’ (in four categories) for each Zodiac calendar year from 1926 to 2015. And their analysis suggests that markets typically perform well in Monkey years.
As the first chart below shows, in the main ‘market factor’ category (investor return from equities over and above risk-free interest-rate based investments), the Year of the Monkey places fifth out of the 12 Zodiac years – its average return of 9.4% means it beats the Year of the Goat.
The year ahead for stocks may be a particularly buoyant one when measured by the ‘size factor’ (excess returns of stocks with small relative to large market capitalisation) and the ‘value factor’ (excess returns with low relative to high book-to-market ratios). Monkey years rank third in both these categories, as the charts below show.
Measured by the ‘momentum factor’ (excess returns of stocks with high relative to low past one-year returns), the Year of the Monkey doesn’t look so merry:
The report authors, however, do end up cautioning against adopting a purely Zodiac-based investment strategy: “The Year of the Rooster seems to be particularly good for each of the equity factor returns, while the Year of the Ox seems particularly poor. However, when we employ statistical tests, we do not find enough evidence to reject the null hypothesis of equal returns across Zodiac signs. Hence, we conclude that investment strategies based on Zodiac signs are unlikely to generate superior returns.”
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