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 ?
The stock market kicked off the New Year with new record highs as expected from the strong January effect this year.
However, we expect bargain hunting to flood the equities market this month majorly due to January effect, APT Securities said.
Mostly this effect as a trading strategy often has been considered as an anomaly associated with the January effect as institutions and investors realize their profits and reorganize their portfolios based on their tax situations.
Therefore, our tests are not confounded by tax loss selling, a common explanation for the January effect (Reinganum, 1983).
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.
The purpose of this study is to explore the efficiency of KSE in light of different seasonal patterns like Day of the week effect, January effect, Turn of the Month (TOM) effect and Ramadan effect.
Fannie Mae exec Kimberly Johnson said that participation in FLA 2013-M1 was quite broad, as the January effect has been true to expectations.
The month of the year's effect most commonly referred to as January effect is the most prominent of all monthly calendar anomalies (Ali and Akbar).
We know there are times when the market tends to rally, such as the January effect, which might make it more likely for those drops to occur in the summer months.
A swift glance at the outcome may let somebody to contemplate that the conclusions seems contentious as one study acknowledges the existence of the January effect while other does not.
Lee and Lee (2003) and Wiley and Zumpano (2008) examine calendar REIT anomalies in conjunction with institutional investing, specifically examining the January effect and the turn-of-the-month effect, respectively.
Dyl and Maberly (1992) suggest that the January effect is influenced by the trading of individual investors.