The Pricing of Firms with Expected Losses/Profits: The Role of January

The Journal of Business Finance & Accounting

55 Pages Posted: 1 Oct 2013 Last revised: 24 May 2018

See all articles by Peng-Chia Chiu

Peng-Chia Chiu

The Chinese University of Hong Kong (CUHK)

Alexander Nekrasov

University of Illinois at Chicago

Terry J. Shevlin

University of California-Irvine

Date Written: September 2017

Abstract

We examine the role of January in the relation between expected losses/profits and future stock returns. We predict and find that the relation between expected losses/profits and future returns reverses from the usual positive relation in non-January months to a negative one in January. The reverse January relation is consistent across sample years, is observed in the United States and international markets, and is incremental to other variables associated with January returns. At least part of the reverse January relation is explained by tax-loss selling. Further analysis shows that the reverse January relation results in a temporary price drift away from fundamental value. In other words, we find that abnormal positive (negative) future returns do not always indicate past under(over)valuation. Overall, our results illustrate the importance of controlling for the effect of January when examining how investors price expected losses/profits.

Keywords: expected losses/profits, return predictability, January effect, tax-loss selling

JEL Classification: G12, G14, G29, M41

Suggested Citation

Chiu, Peng-Chia and Nekrasov, Alexander and Shevlin, Terry J., The Pricing of Firms with Expected Losses/Profits: The Role of January (September 2017). The Journal of Business Finance & Accounting. Available at SSRN: https://ssrn.com/abstract=2333212 or http://dx.doi.org/10.2139/ssrn.2333212

Peng-Chia Chiu

The Chinese University of Hong Kong (CUHK) ( email )

Hong Kong
Hong Kong

Alexander Nekrasov (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

HOME PAGE: http://business.uic.edu/profiles/alexander-nekrasov/

Terry J. Shevlin

University of California-Irvine ( email )

Irvine, CA California 92697-3125
United States
2065509891 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
391
rank
73,395
Abstract Views
2,349
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information