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#analyst-notes #market-efficency
The January anomaly, also called small-firm-in-January effect, says that many people sell stocks that have declined in price during the previous months to realize their capital losses before the end of the tax year. Such investors do not put the proceeds from these sales back into the stock market until after the turn of the year. At that point the rush of demand for stock places an upward pressure on prices that results in the January effect. The effect is said to show up most dramatically for the smallest firms because the small-firm group includes stocks with the greatest variability of prices during the year (and the group therefore includes a relatively large number of firms that have declined sufficiently to induce tax-loss selling).

Another possible reason for January effect on stock markets is strategic selling by institutional investors at the end of their reporting periods. Portfolio managers may be reluctant to report holdings of stocks in their annual reports that have performed poorly in the previous period. Therefore, the managers sell these stocks at the end of their accounting periods (usually end of December). This so-called window-dressing was suggested as a source of the January effect by Haugen and Lakonishok (1988).

Despite numerous studies, the January anomaly poses as many questions as it answers.

Other calendar studies include monthly effect, weekend or day of the week effect, and intraday effect.
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Subject 3. Market pricing anomalies
Time-Series Anomalies Calendar anomalies question whether some regularities exist in the rates of return during the calendar year that would allow investors to predict returns on stocks. <span>The January anomaly, also called small-firm-in-January effect, says that many people sell stocks that have declined in price during the previous months to realize their capital losses before the end of the tax year. Such investors do not put the proceeds from these sales back into the stock market until after the turn of the year. At that point the rush of demand for stock places an upward pressure on prices that results in the January effect. The effect is said to show up most dramatically for the smallest firms because the small-firm group includes stocks with the greatest variability of prices during the year (and the group therefore includes a relatively large number of firms that have declined sufficiently to induce tax-loss selling). Another possible reason for January effect on stock markets is strategic selling by institutional investors at the end of their reporting periods. Portfolio managers may be reluctant to report holdings of stocks in their annual reports that have performed poorly in the previous period. Therefore, the managers sell these stocks at the end of their accounting periods (usually end of December). This so-called window-dressing was suggested as a source of the January effect by Haugen and Lakonishok (1988). Despite numerous studies, the January anomaly poses as many questions as it answers. Other calendar studies include monthly effect, weekend or day of the week effect, and intraday effect. Momentum and Overreaction Anomalies. The debate surrounding investor overreaction and contrarian investing is one of the most extensive and controversial areas of re


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