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Encyclopedia > January effect

The January effect (sometimes called "year-end effect") is an unexplained financial phenomenon of most stock markets having significantly higher returns in January than in other months of the year. This effect has been observed in most countries and in various markets, including share, bond and commodity markets. A stock exchange is an organization of which the members are stock brokers. ... January is the first month of the year in the Gregorian Calendar and one of seven Gregorian months with the length of 31 days. ...

The strength of the effect varies depending on company size and other factors. Image File history File links January_effect_graph. ...

One possible explanation is tax loss selling by investors of poorly performing stocks to capture the capital gain (though this doesn't explain why the effect is observed in countries like Australia that have a different tax year). Another explanation is that the ratio of buys to sells for financial institutions drops significantly in days before the end of the year, pushing down the prices. While this may be true, there is no explanation for this behavior and no explanation of why other investors do not take advantage of this. A fiscal year or financial year is a 12-month period used for calculating annual (yearly) financial reports in businesses and other organizations. ... A financial institution acts as an agent that provides financial services for its clients. ...

Possibly some irrational human personality factors account for the natural optimism at the beginning of the New Year, although this may sound unreasonable in a world of precalculated transactions.

In the last couple of years, after the January effect became widely known to the public, it has become less pronounced and has started shifting to December causing a rise in stock prices, known as a Santa Claus rally. A Santa Claus rally is a late-December rise in stock market activity, generally seen over the final week of trading prior to the new year. ...

External links

Wikiquote has a collection of quotations related to:
January effect
  • The January Effect- Just another Wall Street scam?
  • New Research About December Market Performance

Image File history File links i would like to see some quotations by or about goebbels. ... Wikiquote logo Wikiquote is a sister project of Wikipedia, using the same MediaWiki software. ...

See also

  Results from FactBites:
Jury is out on Playing the January Effect (Russell.com) (866 words)
Around this time each year, investment managers decide whether to use trading strategies that seek to take advantage of the January Effect, the name given to the phenomenon that may occur when tax-conscious investors sell stocks that are down for the year in order to write off losses against capital gains.
In years that this effect has been visible, small-cap stocks have often outperformed large-cap stocks in the beginning of the year.
They agree that the Effect has not worked every year, but they suggest that a careful examination of the markets in the year leading up to January indicates why it has worked in certain years and not in others.
Dogs of the Dow - January Effect (206 words)
The January effect is predicated on the theory that investors tend to sell of their losing stocks towards the end of the year in order to write the losses off on their taxes.
Therefore, according to the January effect, stocks will tend to dip towards the end of the year and rebound in January when tax-loss selling has ended.
The January effect is supposed to have a greater affect on small-cap stocks (as opposed to large-caps) since it is assumed that a relatively small amount of tax-loss selling will still have a significant impact on a relatively small, thinly-traded company.
  More results at FactBites »



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