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The "january effect" is one of the most widely recognized market anomalies. In a nutshell, it refers to the empirical observation that January appears to have systematically higher returns than other months of the year.

What are the most common rationales for this anomaly?

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Have you looked at the related wiki article en.wikipedia.org/wiki/January_effect ? As far as I remember, this and other popular anomalies are discussed in quite a detail in Jeremy Siegel's book. –  olaker Mar 29 '12 at 20:35
    
Yes. I am puzzled at the 4000 google scholar results for "january effect". Some old, others very recent. It seems to me it is not settled and many competing explanations exists. –  Ryogi Mar 30 '12 at 0:44
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1 Answer 1

A new explanation that isn't well known (yet) has to do with human capital. Key employees are most likely to leave in January, after bonuses are paid. In anticipation of this risk, prices decline before January, and then if the key people don't leave, prices rise in January. And, voila... the January effect.

See this paper. Their results work much better than explanations like tax-loss selling and such.

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Very interesting find... Still seems a bit surprising since the human capital risk is a company-specific risk as opposed to a systematic risk that would generate a risk premium at an aggregate level –  Quant Guy Apr 8 '12 at 6:04
    
Idiosyncratic but non-diversifiable should command a risk premium. –  Ryogi Apr 8 '12 at 7:43
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