By now many of our readers will be quite familiar with the different effects that holidays can have on the markets. One example of this is the Santa Claus rally which will be in full swing throughout the month of December. Now we turn our sights to the Chinese New Year and the effect that it has on the Shanghai Composite Index (SSECI).

The fact that there are only 22 years of historical data are available for this index means that it is somewhat difficult to confidently assert a pattern. Nevertheless, there are some pretty interesting data to look at in light of the New Year and other surrounding holidays such as Labor Day, the Mid-Autumn Festival, and the Tuen Ng Festival.

The Chinese Lunar New Year itself suggests some interesting trading behavior, with promising returns in the four or five days leading up to the New Year followed by a fairly rapid drop-off in returns in the subsequent days.

The calendar New Year also boasts quite high returns in the days surrounding it, particularly on the first few trading days of January where approximate average returns sit in the region of 0.5% on each day.

Another Chinese holiday is the Ching Ming Festival, which takes place 15 days after the vernal equinox – this typically falls on April 4th or 5th.

Although the days leading up to this festival aren’t as lucrative, the four or five days following it may be a great time to get exposed to the Chinese stock market due to surprisingly high returns over this period.

Looking at the Chinese Lunar New Year in the broader context of the global economy, we can see that there is somewhat of a slowdown in trading volumes during the period in February.

With many millions of workers across China heading home to spend time with their families, much of the country’s industrial sector essentially shuts down for a week.

This means that many factories are running flat out in the run up to the Chinese New Year, working tirelessly to fill orders and ensure everything is in place for the eventual shut down.