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U.S. stock market sectors and industries perform better during winter than summer from 1926 to 2006. In more than two-thirds of sectors and industries, the difference in summer and winter returns, known as the Halloween effect, is statistically significant. There are, however, large differences across sectors and industries. The effect is almost absent in sectors related to consumer consumption but is strong in production sectors. We find that neither liquidity changes nor well-known risk factors can explain the anomaly. We illustrate how the differences between sectors and industries can improve the risk-return tradeoff using sector rotation. Copyright (c) 2009, The Eastern Finance Association.

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