Summer doldrums are slowing stock trading — but don't sell a dull market short

Despite the typical summer slowdown in stock trading volume, analysis of NYSE data since 1972 reveals no statistically significant correlation between monthly trading volume and average returns. Academic studies on the volume-price relationship are equally inconclusive, with roughly equal numbers finding positive, negative, or non-monotonic correlations, suggesting that investors should not base trading strategies on lackluster summer volume.

Analysis

The recurring concern among market commentators regarding declining U.S. stock exchange trading volume during summer months lacks strong empirical support when analyzed against historical data and academic research. An examination of New York Stock Exchange trading volume since 1972, specifically the ratio of each month's volume to its trailing 12-month average, reveals that while August and July exhibit the lowest and second-lowest average trading volumes respectively, there is no statistically significant correlation between a month's average trading volume and its average market return. For example, November, ranking 10th in average trading volume, has historically shown the best average return since 1972, whereas August ranks 12th for both average volume and average return, highlighting the absence of a consistent directional link. This inconsistency is further underscored by a systematic review of over 200 academic studies, which reported that 38% found a positive relationship between volume and price, 38% found an inverse relationship, and the remaining 24% identified a non-monotonic relationship. Therefore, the premise that reduced summer trading volume necessarily presages market declines is not substantiated; any predictable linkage would likely have been nullified by market participants anticipating such seasonal patterns. The moderately positive sentiment associated with this analysis suggests that lackluster summer volume itself should not be a primary cause for investor alarm.

Key Decisions for Investors

• Investors should avoid making significant portfolio adjustments based solely on the anticipated seasonal decline in stock trading volume, as historical data and extensive academic research indicate no reliable predictive relationship with market returns.
• It is advisable to recognize that low summer trading volume is not inherently a bearish signal for equity markets, and the market adage "don't sell a dull market short" may be particularly relevant.
• Focus should remain on fundamental company analysis, macroeconomic trends, and other established market indicators rather than allowing seasonal volume fluctuations to disproportionately influence investment strategy.