7
$\begingroup$

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?

Improve this question
$\endgroup$
2
  • $\begingroup$ 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. $\endgroup$
    – olaker ♦
    Mar 29, 2012 at 20:35
  • $\begingroup$ 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. $\endgroup$
    – Ryogi
    Mar 30, 2012 at 0:44

1 Answer 1

Reset to default
6
$\begingroup$

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.

Improve this answer
$\endgroup$
2
  • $\begingroup$ 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 $\endgroup$
    – Ram Ahluwalia
    Apr 8, 2012 at 6:04
  • $\begingroup$ Idiosyncratic but non-diversifiable should command a risk premium. $\endgroup$
    – Ryogi
    Apr 8, 2012 at 7:43

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.