All Things Considered, Taxes Drive the January Effect

Posted: 24 Jan 2004

See all articles by Honghui Chen

Honghui Chen

Department of Finance, University of Central Florida

Vijay Singal

Virginia Tech

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 generally been presented in support of a particular hypothesis though the same evidence may be consistent with another hypothesis. Furthermore, prior work does not adequately control 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 explanations.

JEL Classification: G10, G12, G14, H25

Suggested Citation

Chen, Honghui and Singal, Vijay, All Things Considered, Taxes Drive the January Effect. Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=474625

Honghui Chen (Contact Author)

Department of Finance, University of Central Florida ( email )

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

Vijay Singal

Virginia Tech ( email )

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

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