September Effect: Causes, Impact, and Examples


The September Effect, a market anomaly, refers to historically weak stock market returns observed during September. This article delves into the concept, explores its causes, and evaluates its significance in the world of finance.

Understanding the September Effect

The September Effect, a term that draws the attention of investors and economists alike, describes the historical phenomenon of the stock market experiencing weaker returns during the month of September. This article provides an in-depth analysis of the September Effect, its implications, and why it continues to intrigue market enthusiasts.

The September Effect: A historical perspective

For nearly a century, market data has shown that September tends to be the worst-performing month. This statistical anomaly challenges the notion of market efficiency. However, it’s crucial to note that this effect doesn’t manifest in a consistent manner. In some years, September has actually been among the best-performing months, and the median return for this month has occasionally turned positive.

Why the September Effect could exist

Several theories attempt to explain the September Effect. One perspective suggests that investors, returning from summer vacations, may choose to lock in gains and tax losses before the year ends. Additionally, there’s a belief that individual investors may liquidate stocks in preparation for covering schooling costs. Market psychology and sentiment also play a role, as negative expectations can become self-fulfilling prophecies. Institutional investors may choose to sell off assets as the third trading quarter ends, aiming to secure profits. Some large mutual funds opt to cash in their holdings to harvest tax losses as the quarter concludes. However, many economists view the September Effect as irrelevant, believing that it may have once existed but has since been mitigated by traders who adapt their strategies to prevent it.

The October Effect vs. September Effect

The September Effect is not alone in the realm of market anomalies. The October Effect, much like its September counterpart, suggests that October is a negative month for the stock market. Despite historical events like the 1907 panic and Black Monday in 1987, October’s overall history is net positive. Economists and analysts also cast doubt on the existence of the October Effect, suggesting that these anomalies are historical quirks rather than causal relationships.

What has been the worst month for stocks?

Determining the worst month for stocks depends on the time frame under consideration. Over the past century, September has often held the title of the worst-performing month, with an average loss of around 1%. However, this can vary, and there have been instances where other months performed worse.

Is the September Effect real?

The reality of the September Effect remains a subject of debate among financial experts. While historical data shows a negative trend during September, economists often attribute this to chance, as one month has to be the worst. Depending on the time period considered, the September Effect may or may not be present. Some extensive research even spanning over 300 years shows no evidence of this effect, with September returns sometimes exceeding those of other months.

Why the September Effect matters

Understanding the September Effect is crucial for investors and financial professionals. While it may not be a reliable predictive tool, recognizing historical trends and anomalies can help in developing more informed investment strategies. However, it’s essential to remember that markets tend to be efficient, especially once anomalies are identified and publicly known.

Historical examples of the September Effect

Historical examples can shed light on the variability of the September Effect. While September often sees a decline in stock market returns, there are instances where this anomaly wasn’t as pronounced. For example:

The Tech Bubble Burst (2000)

During the bursting of the tech bubble in 2000, the stock market experienced significant declines, but the impact was spread across multiple months. September, in this case, did not stand out as the worst-performing month.

The Great Recession (2008)

The financial crisis of 2008, often considered one of the most severe market downturns in recent history, had its epicenter in the months leading up to September. While the stock market exhibited significant declines, it wasn’t confined to just the month of September.

Subsequent market behavior

Intriguingly, subsequent market behavior post-September Effect has shown some interesting patterns:

The September Effect’s influence on October

While October is generally perceived as a negative month due to historical events like Black Tuesday and the 1987 Black Monday, it’s essential to recognize that the September Effect doesn’t necessarily translate into a negative October. The market’s behavior in October is subject to various factors, and its historical performance is mixed.

Investor sentiment and market psychology

One aspect that’s often discussed concerning the September Effect is the influence of investor sentiment and market psychology. Investors’ beliefs and expectations can significantly affect market trends. When the anticipation of a September downturn is widespread, it can become a self-fulfilling prophecy. Understanding these psychological factors is crucial for investors.

Global variations in the September Effect

The September Effect isn’t limited to the United States; it has been observed in various global stock markets as well. Exploring how this anomaly affects different regions can provide valuable insights:

International stock markets

Countries around the world have reported instances of the September Effect. For instance, the phenomenon is noticeable in European markets, including the FTSE 100 in the United Kingdom and the DAX in Germany. The consistency of this effect across international markets raises questions about its global impact.

The Asian perspective

Asian markets, such as the Nikkei 225 in Japan and the Hang Seng Index in Hong Kong, have also experienced fluctuations during September. This global reach further highlights the need to understand the September Effect from a broader perspective.


In conclusion, the September Effect is a market anomaly that has piqued the curiosity of investors and economists for decades. While historical data suggests a trend of weaker market performance in September, the effect’s significance and predictability remain topics of debate. Regardless, understanding these anomalies is part of the complex landscape of financial markets, allowing investors to make informed decisions.

Frequently Asked Questions

What is the historical performance of the stock market in September?

The historical performance of the stock market in September has often shown weaker returns, earning it the moniker “September Effect.” However, the degree of this effect varies from year to year.

Why does the September Effect occur?

The September Effect occurs due to various factors, including investor behavior, psychology, and market sentiment. Some investors tend to lock in gains or tax losses before year-end, while others liquidate stocks for schooling costs. Market psychology and sentiment can also contribute.

Does the September Effect impact global stock markets?

Yes, the September Effect has been observed in global stock markets, affecting countries beyond the United States. European markets, Asian markets, and others have reported instances of this phenomenon.

Is the September Effect a reliable predictive tool for investors?

The reliability of the September Effect as a predictive tool remains a subject of debate among financial experts. While historical data indicates a trend, it’s not always consistent and may not be a dependable predictor of market performance.

What other months have shown poor stock market performance historically?

Determining the worst-performing month for stocks depends on the time frame under consideration. While September has often been cited as the worst, other months have also seen poor performance. It’s crucial to consider historical data in context.

How should investors approach the September Effect?

Investors should approach the September Effect with caution. While understanding historical anomalies is valuable, it’s essential to remember that markets tend to be efficient, and anomalies may not persist once widely known. Diversification and a long-term investment strategy are key.

Key takeaways

  • The September Effect refers to historically weak stock market returns in September, challenging market efficiency.
  • Various theories attempt to explain the September Effect, including investor behavior and market psychology.
  • The October Effect is a similar market anomaly, suggesting negativity in October, but its existence is also debated.
  • The significance of the September Effect in investing remains a subject of discussion among economists and analysts.
View article sources
  1. Why September, on average, is the worst month for … – NPR
  2. Market Statistics – September 2022 – The World Federation of Exchanges
  3. The Behavior of Stock-Market Prices – JSTOR