The “October effect” is a flawed theory that assumes that the stock market falls in October.
October Effect Explained
This belief is attached to the biggest stock crashes in history happening in this very month, like the famous black Monday in 1929 and the black Monday in 1987. There is no evidence that October is the worst month for stocks though and statistics even point to September being worse on average.
It’s always best to look at the fundamental context rather than blaming a particular month.
Is the October Effect Real?
This belief may have more of a psychological “fear” rather than being based on facts and in fact some bear markets actually bottomed in October delivering afterwards good returns.
On the other hand, you may say September is a bad month because statistically stocks performed worse during the month and some black swan events like the Lehman Brothers collapse happened in September, but ironically it doesn’t have the same theory attached to it.
