The turn-of-the-month (TOM) stock market anomaly, where returns cluster heavily around month-end and early-month trading days, is validated by academic literature. Analyzing
Dow Jones data from 1910 to the present using a relative trading day
counter that excludes weekends reveals that while mid-month returns
remain weak or negative, performance surges dramatically from the
second-to-last trading day (day -2) through the fourth trading day (day
+4) of the new month.
The TOM anomaly (-2 to +4 trading days) has delivered persistent outperformance
versus buy-and-hold with lower drawdowns across 116 years of Dow data.
Segmenting this 116-year history into three 40-year periods (1910–1950, 1950–1990, and 1990–present) confirms consistent TOM outperformance across all regimes, despite a post-1990 dip on the final trading day skewed by rare macro anomalies like 9/11 and the 2008 financial crisis. A systematic strategy trading this -2 to +4 window historically outperformed traditional buy-and-hold, generating higher profits with lower drawdowns during the 1929 crash, multi-decade sideways markets, the dot-com bust, and the 2022 bear market, showing historical flat periods often precede strong resurgences. The strategy's second-largest drawdown occurred in 2008, supporting the outlier theory.
Hypothesized causes like recurring automated capital flows (salaries/retirement) and institutional rebalancing remain unproven, as trading volumes do not spike and automated systems did not exist in 1910. Lacking a definitive causal consensus, the TOM effect persists either as a structural confluence or an unexplained anomaly.