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Window-Dressing, Tax-Loss Selling, and Momentum Profit Seasonality

18 Pages Posted: 31 Mar 2006  

Richard W. Sias

University of Arizona - Department of Finance

Date Written: March 30, 2006

Abstract

The success of momentum strategies over the past 20 years is predominately driven by the last month in each quarter. Excluding Januaries (a month in which lag losers typically outperform lag winners), the average monthly return to a momentum strategy in non-quarter-ending months is 59 basis points. Alternatively, the average monthly return to a momentum strategy for a quarter-ending month is 310 basis points. These patterns are strongest in securities with high levels of institutional ownership and in December. The results suggest that window-dressing by institutional investors and tax-loss selling contribute to stock return momentum. Investors attempting to exploit stock return momentum should focus their efforts on quarter-ending months and securities with high levels of institutional ownership.

Suggested Citation

Sias, Richard W., Window-Dressing, Tax-Loss Selling, and Momentum Profit Seasonality (March 30, 2006). Available at SSRN: https://ssrn.com/abstract=894333 or http://dx.doi.org/10.2139/ssrn.894333

Richard W. Sias (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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