S&P Dow Jones Indices conducted an analysis to test the theory of a “Santa Claus rally” and found evidence supporting the phenomenon actually exists.
They tested index returns by region from December 1994 through November 2014 (Hong Kong being the exception, where analysis began in 1997). The firm calculated what it calls a “Santa Score,” calculated by dividing the average performance each December by the annualized total return over the period.
In theory, “since there are 12 months in the year, a Santa Score of around one-twelfth (about 0.08) would be expected; a Santa Score above 0.08 indicates that December is a better month for stocks, on average.”
A Santa score above 1 “implies that investing only in December (and doing nothing for rest of the year) is a market-beating strategy.” Over the last 20 years, Japan topped the list at 1.13, followed by Italy, Germany, India and U.S. small caps (as measured by the S&P 600 index).