Seasonality in the cross section of stock returns: Advanced markets versus emerging markets

We extend the studies of stock return seasonality by Heston and Sadka (2008, 2010) to a comprehensive sample of 42 international markets, including 21 advanced markets and 21 emerging markets. The empirical results show a large variation in stock seasonality across markets and suggest that this phenomenon exists primarily in advanced markets. A winner-loser portfolio approach shows that return seasonality is economically significant in advanced markets but not in emerging markets. We conduct statistical, rational and behavioral analyses to explore the potential reasons for the seasonality observed in advanced markets and find that regression bias, the January effect, and the Fama-French-Carhart type risk premium all can partially explain this seasonality difference.