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September 15, 2024
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The September effect: what it is and how it affects financial markets

The September effect: what it is and how it affects financial markets

For ordinary people, the arrival of September is perceived as the moment when the countdown to the end of the year begins. For financial markets, the effect is somewhat different, since historically this month has been characterized by being the one that ‘scares’ investors the most.

(Read more: Colombian Global Market Surpassed One Trillion Pesos in Trading Volume)

The reason? For almost a century it has been observed that the ninth month of the year is the one in which They tend to record more losses on the stock exchanges. This pattern is so recurrent that it has been classified as the ‘September Effect’.

Why it occurs

Some believe the weakness seen in September can be attributed to a seasonal behavioral bias, as investors shift portfolios to obtain cash at the end of summer.

Other theories also point to the end of the earnings season, as well as the closing of the fiscal year for some companies, which could influence the behavior of securities traded on the market. This anomaly is also believed to be motivated by the fact that many large mutual funds convert their holdings into cash to harvest tax losses at the end of the quarter.

Now, it must be taken into account that, although it is true that September has been the month with the worst performance and with greater frequency of losses in the last centurythe time period under consideration is very important. That is why some economists dismiss the existence of this effect.

(Read more: What explains the slight recovery in the issuance of public debt securities)

Financial market

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(See: After the 2025 Budget amount was denied, what will happen with the financing law)

Coincidence?

According to the financial services firm Skandia, another factor to take into account is that markets are complex, so they do not always behave in a perceptible way.

“Although the ‘September Effect’ does not have a definitive explanation, it is a clear example of how emotions, expectations and investor psychology can significantly influence market movements,” points out.

In fact, there is a theory that suggests that as investors expect the September effect to occur, market psychology takes over and sentiment turns negative to align with those expectations. Whether or not this has any influence on the market, however, remains a mystery.

(Read more: Colombia’s external debt fell to 48.5% of GDP in June)

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