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This article documents a new stock market anomaly that seems to have escaped the attention of both investment professionals and academics. For more than a century, the monthly market return has been predicted by the monthly market return at lag 5. This predictability is marketwide and is most evident in the returns of portfolios of large and growth stocks. The trading strategy incorporating this predictability yields superior performance that cannot be attributed to common risk factors. A closer investigation of the new anomaly reveals that not each calendar month possesses predictive ability. Therefore, there is a link between the new anomaly and calendar effects in stock returns. [ABSTRACT FROM AUTHOR]

There is a big controversy among both investment professionals and academics regarding how the termination probability of a market state depends on its age. Using more than two centuries of data on the broad US stock market index, we revisit the duration dependence in bull and bear markets. Our results suggest that the duration dependence for both bull and bear markets is a nonlinear function of the state age. It appears that the duration dependence in bear markets is strictly positive. For 93% of the bull markets, the duration dependence is also positive. Only about 7% of the bull markets, those with the longest durations, do not exhibit positive duration dependence. We also compare a few selected theoretical distributions on their ability to describe the duration dependence in bull and bear markets. Our results advocate that the gamma distribution most often provides the best fit for both the survivor and hazard functions of bull and bear markets. However, our results reveal that none of the selected distributions accurately describes the right tail of the hazard functions. [ABSTRACT FROM AUTHOR]