Is the January Effect Economically Exploitable? Evidence from Athens Stock Exchange

Abstract

This paper pioneers the study of the economic significance of the monthly seasonality in the emerging markets. Previous literature on the seasonal anomaly, mainly on big and developed markets, has often reported that the anomaly is insignificant after considering the transaction costs. Using real time data including transaction costs of the Athens Stock Exchange, we find very significant January strategy profits, thus casting doubt on the efficiency market hypothesis. This is good news for international portfolio investors. Further, we find that the pattern of January effect changes with the market direction. Specifically, the January effect disappears when the market experiences heavy depressing. This is reasonable as when the market is going down, investors may be reluctant to buy back the stocks they sold previously in December, as described by portfolio rebalancing or window-dressing hypothesis. The main implication of this new finding is that investors may need to consider the market direction when constructing January strategy.

Keywords: Emerging markets, January Effect, Market efficiency

JEL Classification: G14, G15