The January Effect
It is defined as a perceived seasonal increase in stock prices during January.
Analysts generally attribute this rally (a period of sustained increases in the prices of stocks, bonds, or related indexes) to two factors.
- A price drop happens in December - when investors prompt a sell-off due to tax-loss harvesting to offset realized capital gains - followed by an increase in buying in January.
- Investors use year-end cash bonuses to purchase investments in January.
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January Effect Explanations
Besides tax-loss harvesting and repurchases, and investors putting cash bonuses into the market, the January Effect is affected by investor psychology.
- Some investors feel that January is the best month to begin an investment program.
- Others think that mutua...
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