Forecasting US Stock Returns with Halloween Effect in Japanese Candlestick

Japanese candlestick has been widely used in investment practice, however its predicting power has not yet been scrutinized in academic literature. This paper investigates the forecasting power of Japanese candlestick augumented by Halloween effect in stock returns. Empirical studies performed on the S&P500 stock index show that Japanese candlestick if augumented by Halloween effect can deliver signficant in- and out-of-sample forecasts in both statistical and economic sense. Moreover, we find that there is significant Halloween effect in the Japanese candlestick, and that Halloween effect in Japanese candlestick dominates Halloween effect in stock returns in stock return forecasting.