A November Effect: Revisiting the Tax-Loss Selling Hypothesis

21 Pages Posted: 13 Jan 2000

See all articles by Harjeet S. Bhabra

Harjeet S. Bhabra

Concordia University, Quebec - John Molson School of Business

Upinder Dhillon

SUNY at Binghamton - School of Management

Gabriel G. Ramirez

Kennesaw State University - Michael J. Coles College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 1999

Abstract

We document the existence of another seasonality in stock returns: A November effect. The uniqueness of this study is that the November effect is observed only after the passage of the Tax Reform Act of 1986. The impact of the Act resides in the treatment and distribution of capital gains and losses by mutual funds. We document a unique and significant relationship between excess returns and the potential for tax-loss-selling and conclude that the November effect is explained by the tax-loss-selling hypothesis. We also show that the January effect in the post-Act period is stronger than in the pre-Act period. This result is likely to be due to the elimination, by the Act, of the preferential treatment for capital gains. The robustness of these conclusions is supported by an analysis of trading volume. The evidence presented in this paper suggests that tax-loss-selling is a dominant explanation for the seasonality of stock returns.

JEL Classification: G14

Suggested Citation

Bhabra, Harjeet Singh and Dhillon, Upinder S. and Ramirez, Gabriel G., A November Effect: Revisiting the Tax-Loss Selling Hypothesis (August 1999). Available at SSRN: https://ssrn.com/abstract=194388 or http://dx.doi.org/10.2139/ssrn.194388

Harjeet Singh Bhabra

Concordia University, Quebec - John Molson School of Business ( email )

1455 De Maisonneuve Blvd. West
Dept. of Finance
Montreal, Quebec H3G 1M8
Canada
514-848-2900 (Phone)
514-848-8645 (Fax)

Upinder S. Dhillon

SUNY at Binghamton - School of Management ( email )

Binghamton, NY 13902-6015
United States
607-777-4381 (Phone)
607-777-4422 (Fax)

Gabriel G. Ramirez (Contact Author)

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

1000 Chastain Road
Kennesaw, GA 30144
United States
770-423-6181 (Phone)

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