Institutional Investors, Analyst Following, and the January Anomaly

FRB Atlanta Working Paper 98-8

21 Pages Posted: 3 Sep 1998

See all articles by Lucy F. Ackert

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business

George Athanassakos

University of Western Ontario - Finance-Economics Area Group

Date Written: June 1998

Abstract

Studies have documented that average stock returns for small, low-stock-price firms are higher in January than for the rest of the year. Two explanations have received a great deal of attention: the tax-loss selling hypothesis and the gamesmanship hypothesis. This paper documents that seasonality in returns is not a phenomenon observed only for small firms' stock or those with low prices. Strong seasonality in excess returns is reported for a sample of widely followed firms. Sample firms have unusually low excess returns in January, and returns adjust upward over the remainder of the year. These results are consistent with the gamesmanship hypothesis but not the tax-loss-selling hypothesis. As financial institutions rebalance their portfolios in January to sell the stock of highly visible and low-risk firms, there is downward price pressure in January. In addition, the results suggest that firm visibility explains why seasonality in returns is related to firm size and stock price. Once we control for visibility, market value and uncertainty do not appear to be important determinants of seasonality.

JEL Classification: G10

Suggested Citation

Ackert, Lucy F. and Athanassakos, George, Institutional Investors, Analyst Following, and the January Anomaly (June 1998). FRB Atlanta Working Paper 98-8, Available at SSRN: https://ssrn.com/abstract=119608 or http://dx.doi.org/10.2139/ssrn.119608

Lucy F. Ackert (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Department of Economics and Finance
Kennesaw, GA 30144
United States
770-423-6111 (Phone)
770-499-3209 (Fax)

George Athanassakos

University of Western Ontario - Finance-Economics Area Group ( email )

London, Ontario N6A 5B8
Canada

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