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Part 2: The New Laws > Seasonality and Cycles

Chapter 6. Seasonality and Cycles

Many seasonal and cyclical patterns are becoming less predictable.

The stock market, like many aspects of business and the economy, has long been subject to a host of cyclical influences. Compensation schedules, tax laws, specialized investment programs, asset allocation preferences, mutual fund practices, and budgeting processes have regularly affected the flow of funds into and out of the share-trading arena. Even mood swings and shifts in psychology, stimulated by such recurring factors as the changing seasons, have likely played a part, though the specific impact of those has been difficult to pin down. While destabilizing events—earthquakes, assassinations, terrorist attacks—have occasionally muddied the waters, historically at least, there appears to have been some measure of consistency to the rhythm of share prices. Indeed, numerous studies have noted the existence of such patterns,[1] though in reality, few generate much in the way of tradable profits after transaction costs are taken into account. Nonetheless, investors have often tried to adjust the timing of their buying and selling activities to capitalize on the ebb and flow. In recent years, however, it seems that distortions caused by various modern developments have made that process much more challenging.


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