The january effect hypothesis in the indonesian capital market does not support, whereas the combined test conducted to differentiate the behavioral pattern of the days of the week effect and the. Specifically, is it possible to earn an above normal return at the beginning of the new year. Australia have january effects, even though their tax years begin on april 1 and july. The predictive value of the signs of january returns. To determine the change on stock market in the month of january. Evidence and implications 17 equation 2 r i,t p i,t pi,t1 1 p i,t1 where. The literature on monthly effects, generally, confirmed higher returns in january. However, looking further back, wachtel 1942 was actually. In a seminal article, rozeff and kinney 1976 reported evidence of a seasonal pattern in stock market returns using an. The january effect, first documented by rozeff and kinney 1976, is the. In a seminal article, rozeff and kinney 1976, using an equalweighted index of nyse prices, reported evidence of a seasonal pattern in stock. In what proved to be a seminal paper, rozeffand kinney 1976 found seasonal patterns in an equalweighted index of new york stock exchange prices over the. Abnormally high stock returns in the first two weeks of january, the socalled january effect, are a wellknown but largely unsolved mystery, although it is found to be mainly a small firm effect rozeff and kinney, 1976, reinganum, 1983.
Investigating january effect in karachi stock exchange. Evidence of such anomaly was investigated by michael s. View citations in econpapers 194 track citations by rss feed. The size effect explains that small cap stocks outperform in the month of january banz 1981. We find no clear evidence that either conditional volatility or unconditional. In a seminal article, rozeff and kinney 1976 reported evidence of a. Early skeptics of the january effect include richard roll, don keim, and marc reinganum, all of whom published papers in 1983 here, here, and here, respectively.
A natural question is why the january effect has persisted for so many years. Where dummy represents january and assumes the value of 1 for business days in january. In particular, they report higher means of january returns compared with most other months, which is later well known as the january effect or turn of the year effect. Thirtyfour years later, rozeff and kinney 1976 pointed out that common stock returns in january are signi. Dash mihir, dutta anirban and sabharwal mohit 2011 studied a monthoftheyear. In the calculation of returns, t represents two distinct time periods, t 1 is the index value after the first four trading days and t2 is the second to last trading day of the month. Keim 1983 asserted that in developed countries like the us and the uk, january effect may be attributed to settlement procedures, insider trading and taxloss selling. January introduction the turnoftheyear effect represents one of the most puzzling phenomena in the finance area. Received january 1976, revised version received march 1976 in this paper we present evidence on the existence of seasonality in monthly rates orreturn on the new. In other words, there is essentially no smallfirm effect except in january. We use a timeseries garch framework with the conditional variancecovariance as proxies for systematic risk to reexamine the proposition by rozeff and kinney 1976 and rogalski and tinic 1986 that the january effect may be a phenomenon of risk compensation in the month. The january effect and the relationships between stock.
Our evidence documents a sizable mean reverting component beginning in the latter part of january and a shorter duration of the seasonal effect. Rozeff and kinney 1976 found that from the years 1904 to 1974 average. The january effect by mark haug, mark hirschey ssrn. In the calculation of returns, t represents two distinct time periods, t 1 is. Rozeff and kinney 1976, in the 1970s, documented that january had higher return in stock market in comparison with. One possibility given in the literature is that the january effect is a compensation for risk. This january effect in smallcap stock returns is remarkably consistent over. Nov 02, 2005 the january effect in small cap stock returns is remarkably consistent over time, and does not appear to have been affected by passage of the tax reform act of 1986. The january effect, also known as the turnoftheyear effect, is a calendar effect wherein securities increase in value more rapidly than in other months. The opposite is true when a january effect is not evident, as the gamesmanship hypothesis would predict jel g14. In eu 20082014, monthly data regarding the variation of stock returns january effect does not matter, while eu follows the usa stock returns and finally southern regions who are mostly hit by the crisis tend to have a negative impact on stock returns. The existence of the january effect has been widely found in many markets. The january effect and lunar new year influences in frontier. In a paper of 1976 by rozeff and kinney, they found that during the period of 19041974, equally weighted indices of all the stocks listed on the new york stock exchange had notably superior returns in the month of january than in.
By definition, the sum of the intercept and slope is equal. The effect is found to be quite persistent haugen and jorion, 1996 and does not seem to disappear, although the effect gradually becomes. On the other hand, sias and starks 1 rozeff and kinney 1976 first document the january effect, whereby stock returns are higher, on average, in january than in other months. If this anomaly is exploitable and if the stock market is reasonably efficient, one would expect that opportunity would have been priced away by now.
Rozeff and kinney 1976 examined the january effect using new york stock exchange stocks for the period 19041974, and concluded that average return for the month of. The january effect, arbitrage opportunities, and derivative. Rozeff and kinney 1976 performed a study about the new york stock exchange prices for the period 1904 to 1974. The january effect weakens with the development of a market. This equation is for the easiest test to determine the january effect on stock market. January effect in eu stock market valuewalk premium. This finding adds new perspective to the traditional taxloss selling hypothesis, and suggests the potential relevance of behavioral explanations. While tax effects have long presented a plausible explanation of the january effect in the. Rozeff and kinney 1976 found that the average return on an equal weighted index of new york stock exchange prices from 1904 through 1974 was 3.
In addition to the us markets, the january effect has also been observed in other. The january effect, first documented by rozeff and kinney 1976, is the phenomenon that risk adjusted, returns in january provide abnormally higher return than in any other month. The january effect, first documented by rozeff and kinney 1976, is the phenomenon that riskadjusted, returns in january provide abnormally higher return than in any other month. The yearend disturbance in the prices of small stocks that has come to be known as the january effect is arguably the most celebrated of the many stock market anomalies discovered during the past two decades. Impact of the january effect on return rates in the. The january effect in small cap stock returns is remarkably consistent over time, and does not appear to have been affected by passage of the tax reform act of 1986. Rozeff and kinney 1976 reintroduce the january effect to modern finance by investigating monthly returns on the new york stock exchange in different time periods. As the january effect has been empirically verified for time periods before the advent of income taxes fedenia, haugen, cuny and cho, 1990, the portfolio rebalancing hypothesis provides a more compelling explanation for the january effect than its major competing hypothesis, taxloss selling. The persistence of these returns stands in opposition to the efficient market hypothesis and has been a target for investigation. It is clear that the wellknown january effect exists in the post kinney and rozeff 1976 period. A new perspective on the anomalies in the monthly closings. Higher return from investing in the worst performing.
Many years after watchel made his discovery another important paper was published about the january effect. Rozeff and kinney examine stock returns from 1904 to 1974 and confirm wachtels finding the january effect is real. Later studies by banz 1981 and reinganum 1981 report a significant negative relationship between rates of return and firm size. In other words, the january effect indicates a systematic pattern in security prices. Rozeff and kinney 1976 found that the average return on an equal.
The january effect refers to the fact that there is higher average share market returns in january when compared with other months. Rozeff and kinney used an equalweighted index and found there were seasonal patterns in stock prices from 19041974. One such anomaly is the turnoftheyear effect henceforth the january effect, which is a phenomenon whereby stocks generate unusually high returns in early january. This phenomenon, which is most pronounced over the month of january, has become known as the january or turnofthe. By using dow jones industrial average, wachtel 1942 finds seasonality in stock prices for the time period 19271942. Impact of the january effect on return rates in the markets. The january effect on stock returns of firms quoted at the. The january effect and lunar new year influences in. Past studies in developed markets that have supported the existence of this anomaly include rozeff and kinney 1976, gultekin and gultekin 1983, keim and stambaugh 1984. This has been the most widely studied anomaly, beginning with rozeff and kinney 1976 who. Rozeff and kinney 1976 as introducing the january effect to the world of finance. Testing the monthly calendar anomaly of stock returns in. Evidence of idiosyncratic seasonality in etfs performance.
Rozeff and kinney 1976 found that from the years 1904 to 1974 average stock market returns. Finally, patel 2016 also found evidence that the january effect is no. For the other months, there is only a minor difference in returns. Whenever a january effect is observed, the last quarter of the year tends to be weak for those companies in our sample that experienced a strong january. January effect in the second half of the month, but cannot explain the effect in the first half of the. Rozeff and kinney 1976 found that returns on an equal weighted index of nyse stocks were much higher in january than in the other months of the year. While rozeff and kinney 1976 show a january effect on stock returns, tinic and west 1984 document a january seasonal in the betarisk premium in u. We find no clear evidence that either conditional volatility or unconditional volatility in january is predominantly. A test of market efficiency shelby klock longwood university. If the january effect fails, does market timing also fail. Northholland publishing company capital market seasonality.
Many papers cite rozeff and kinney 1976 as introducing the january effect to the world of finance. Rozeff and kinney 1976 are among the first to illustrate the existence of seasonality in u. Rozeff and kinney 1967 discovered the january effect. Jan 11, 2007 this paper provides direct evidence supporting the tax.
This has been the most widely studied anomaly, beginning with rozeff and kinney 1976 who were the first to document that average equity returns are higher in. It is first identified by rozeff and kinney 1976, who find that stocks earn higher returns in january than in other months, thus also dubbed the january effect. January has the highest median return in period 1 0. The stock markets seasonality often referred to as the january effect has been examined by a number of researchers dyl 18, rozeff and kinney. Haugen and lakonishok 1988 have advanced the hypothesis that the january effect is a result of simultaneous reentry into aggressive investment strategy by professional fund managers 2 wachtel introduced the concept of january effect in 1942, but rozeff and kinney s article in the widely respected. Perhaps the best known of these is the january effect. Professional portfolio managers and the january effect. This paper provides direct evidence supporting the tax. The scrutinizedfirm effect, portfolio rebalancing, stock. Pdf the evolution of the january effect researchgate. Although tax effects have long presented a plausible explanation of. Rozeff and kinney 1976 examined the january effect using new york stock exchange stocks for the period 19041974, and concluded that average return for the month of january was.
Rozeff and kinney 1976 and rogalski and tinic 1986 showed that volatility and betas are usually higher in january. A test of market efficiency abstract the purpose of this study is to test the weak form efficient market hypothesis by analyzing the effects of year end sellingbuying and the january effect on stock price. A test of market efficiency abstract the purpose of this study is to test the weak form efficient market hypothesis by analyzing the. Keim 1983 demonstrated that the size effect was concentrated in january. The january effect is one of the most commonly studied anomalies in finance. The january effect was brought to the attention of modern finance by rozeff and kinney, but it was first introduced to the academic literature more than 50 years ago by wachtel. After a generation of intensive study, the january effect continues to present a serious challenge to the efficient market hypothesis. January effect is not as pervasive across risk classes and industry sectors as earlier studies using aggregate data have shown it to be.
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