The stockmarket in October

October is a puzzling month for investors. It has a deserved reputation for volatility. Since 1984, seven of the 10 largest one-day market falls have occurred in October - the biggest in October 1987, when the FTSE 100 index fell by 12.2%.

October's record is also tarnished by an average return of just 0.3% since 1970, ranking it ninth among the 12 months of the year.

Things have changed somewhat in recent years, however. The market occasionally suffers large falls in October, but it usually posts a positive return. In the past 23 years, the market has only fallen five times in October - performance only bettered by December.

In recent years, the market has returned an average of 1.5% in October (albeit with a high standard deviation), ranking the month fourth.

Outside the UK

That said, outside the UK the picture in October is less good. In 2013 an academic paper analysed 70 of the 78 operational stockmarkets around the world, and found that October was the third-weakest month of the year on average in the 70 markets.

The month is one of only two (the other is September) when FTSE 100 stocks tend to outperform the mid-cap FTSE 250 index. Since 1986, blue chips have on average outperformed mid caps by 0.7%.

October marks the end of a weak six-month period starting in May, so investors may be looking to increase their market exposure then. This may explain the fact that the last trading day of October is the strongest of the year.

Stephen Eckett is author of The UK Stock Market Almanac 2015, available to Money Observer readers for just £17, including delivery (£14.75 + £2.25 UK p&p). The recommended retail price is £20.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.