The January Effect - Deepstash
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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.

  1. 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.
  2. Investors use year-end cash bonuses to purchase investments in January.

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Studies and Criticism

  • A study analysing data between 1904 and 1974 revealed that the average return for stocks during January was five times higher than any other month, particularly in small-capitalisation stocks.
  • Another study from 1972 to 2002 found that the Russell 2000 inde...

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Understanding The January Effect Hypothesis

The January effect was first noticed in 1942 but has been less pronounced in recent years. The hypothesis suggests that markets as a whole are inefficient. Efficient markets would not follow this effect.

Small caps - companies with a relatively small market capitalisation ...

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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...

20

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Investing and saving is not the same thing.

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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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