December is traditionally the best month for the FTSE 100, and history seems to suggest there is something to the idea of a 'Santa' rally.
Investment groups Schroders and Tilney have put some numbers on the trend. After looking through data for the last 20 years, Schroders found that the FTSE 100 rose 83% of the time.
Across the pond, the same trend appears to hold, with the S&P 500 having risen for 83% of the time in December over the last 30 years, according to Tilney.
There are a number of theories behind the trend. James Rainbow at Schroders pointed to investor psychology. 'There is, perhaps, more goodwill cheer in the markets due to the holiday season putting investors in a positive mood, which drives more buying than selling,' he said.
Tilney managing director Jason Hollands said portfolio positioning was a more likely explanation for the trend, with fund managers "window dressing" their portfolios with stocks that had performed well ahead of reporting periods.
'Another factor could be hedge funds closing down short positions that have not played out as expected, forcing them to buy back shares and return them to the institutions who lent the shares to them,' he said.
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