January effect

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January effect

Refers to the historical pattern that stock prices rise in the first few days of January. Studies have suggested this holds only for small-capitalization stocks. In recent years, there is less evidence of a January effect.

January Barometer

A theory stating that the performance of the S&P 500 in January predicts its performance for the remainder of the year. That it, if the S&P ends January higher than it began, there will be a rising stock market and vice versa. Investors using the January barometer make investment decisions based on this performance; they buy S&P 500 stocks when performance is strong in January and sell when it is not. The January barometer has had mixed results over the years.

January effect

The tendency of stocks to perform better in January than at any other time of the year. Some analysts speculate that the stock market tends to become oversold in December when investors sell to establish losses for tax purposes or to obtain money for holiday spending.
Case Study One investment strategy that uses stock index futures or stock index options to profit from the January effect assumes that equities of small firms continue to outperform equities of large firms during the early part of each calendar year. Using this strategy, an investor could take advantage of the higher returns offered by small-caps by purchasing options or futures on the Value Line Composite Index, which includes more than 1,700 stocks, and simultaneously selling options or futures on a blue chip index such as the S&P 500 or the Major Market Index. This spread should produce a profit regardless of an increase or decrease in the overall market so long as small-caps outperforms large-caps. This same spread will be a losing investment if the January effect doesn't hold and small-caps underperforms large-caps.

January Effect.

Each year, the stock market tends to increase slightly in value between December 31 and the end of the first week of January.

Known as the January effect, this rise starts when investors sell underperforming stocks at year-end to claim capital losses on their tax returns.

After the new tax year begins on January 1, the same investors tend to reinvest the money from those sales, heightening demand temporarily, and making the overall market rise slightly during that week.

References in periodicals archive ?
1987; Ariel 1987; Tong 1992; Pandey 2002), the January effect happens due to several reasons indentified like, it occurs due to taxmotivated transaction, market participants intends to reduce their tax expenses by closing their bad positions, returns realized on small and large firms.
Dyl and Maberly (1992) suggest that the January effect is influenced by the trading of individual investors.
Of particular interest is the persistence of the January Effect, even though it has been well known for about 30 years.
The day-of-the week effect, first documented by Osborne (1962); the weekend effect (significantly lower returns over the period between Friday's close and Monday's close), first documented by French (1980); the January effect (relatively higher returns in January), first reported by Wachtel (1942); the trading month effect studied by Ariel (1987); and the holiday effect documented by Lakonishok and Smidt (1988), are among the most important calendar effects.
We also show that the January effect in the post-Act period is stronger than in the pre-Act period.
com/), an online investment newsletter focused on long-term growth and income-generating stocks, has provided subscribers with investment coverage on several stocks that could rebound as a result of the January Effect, including Baidu.
The January effect exhibits a pronounced declining trend for both large and small firm stock indices for the last few decades and the effect is disappearing in major equity indices of Canada, France, Germany, Japan and United Kingdom.
Various seasonal anomalies in stock returns have been researched since Rozeff and Kinney (1976) originally presented the January effect.
A January effect has also been ascertained in corporate bond returns and yields (see Chang and Pinegar, 1986; Chang and Huang, 1990; Fama and French, 1993; and Barnhill, Joutz, and Maxwell, 1997) and municipal bond returns (see Kihn, 1996).
The nonexistence of January effect in the markets may support the tax-loss selling hypothesis for the U.
Section IV examines how the January effect and the Tax Reform Act of 1986 may have affected low-grade municipal bond fund financial performance.
5 /PRNewswire/ -- If you're banking on the January Effect to make money in stocks this month - or this year - you may want to reconsider .