Do stocks really fall in rollover week?

Update

Here is a summary of the findings for the last 5 years:

In short, out of 62 rollover weeks since 2019, 32 closed positive while 30 closed negative. In other words, 51.6% of the time the index ended up positive during rollover week.

Original Analysis

This analysis was done at the end of the December 2023 rollover week.

In the Pakistan Stock Exchange, there is often an understanding that stocks will fall in a rollover week. Everyone is advised to be cautious because traders will close their positions before the end of the week, resulting in downward pressure on the market. But is this really true?

As the year comes to an end, I decided to check how often the markets fell in the 12 rollover weeks in 2023. Here is a chart depicting the movement during rollover weeks in 2023. The index was positive on 8 out of the 12 rollover weeks this year!

Similarly, in 2022, stocks were up on 7 out of the 12 rollover weeks in the year as shown below.

Here is a summary of the findings for the last 5 years:

In short, out of 60 rollover weeks in the last 5 years, 30 closed positive while 30 closed negative. In other words, 50% of the time the index ended up positive during rollover week. So the overwhelming negativity in the PSX during rollover weeks does not seem to be justified. In fact, there does not seem to be any relationship between the rollover week and selling pressure.

What is a rollover week in PSX?

For those who don’t know, the last Friday of every month is a rollover week in the PSX. On this date, open future positions are carried forward to the next month. Those who do not wish to carry their positions into the next month’s futures contract close their positions before the last Friday of the month.

It is generally said that this results in selling pressure, further resulting in downward pressure on the index.

However, the reality seems to be different considering the data from the last 5 years.

What really happens during the rollover week?

Just like any other trading week, there are multiple market participants with multiple different objectives. It may be true that there is an increase in market activity during the rollover week. But this process does not necessarily create selling pressure in the market.

Traders are likely to adjust their positions more due to market sentiments, upcoming economic news and conditions and other specific events. The rollover deadline alone should not generate any trading activity as it is already known and a part of the traders’ trading plan.