January Effect - a Re-Examination

41 Pages Posted: 22 Mar 2002

See all articles by Honghui Chen

Honghui Chen

Department of Finance, University of Central Florida

Vijay Singal

Virginia Tech

Date Written: December 2001

Abstract

The multitude of explanations for the January effect leaves the reader confused about its primary cause(s): is it tax-loss selling, window-dressing, information, bid-ask bounce, or a combination of these causes? The confusion arises, in part, because evidence has been presented in support of a particular hypothesis though the same evidence may be consistent with more than one hypothesis.

Furthermore, prior work has not adequately controlled for the bid-ask bounce. In this paper, we try to disentangle different explanations of the January effect and identify its primary cause. We find that tax-related selling is the most important cause, overshadowing other possible explanations.

JEL Classification: G14

Suggested Citation

Chen, Honghui and Singal, Vijay, January Effect - a Re-Examination (December 2001). Available at SSRN: https://ssrn.com/abstract=302715 or http://dx.doi.org/10.2139/ssrn.302715

Honghui Chen

Department of Finance, University of Central Florida ( email )

PO Box 161400
Orlando, FL 32816
United States
407-823-0895 (Phone)

Vijay Singal (Contact Author)

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States
5402317750 (Phone)

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