From Investopedia:
January Effect
From Wikipedia: The
January Effect is a calendar-related anomaly in the
financial market where
financial security prices increase in the month of January. This creates an opportunity for investors to buy stock for lower prices before January and sell them after their value increases. Therefore, the main characteristics of the January Effect are an increase in buying securities before the end of the year for a lower price, and selling them in January to generate profit from the price differences. This type of pattern in price behavior on the financial market supports the fact that financial markets are not fully
efficient. The January Effect was first observed in the early
1980s by Donald Keim who, at the time, was a graduate student at the
University of Chicago. It is the observed phenomenon that since
1925, small
stocks have outperformed the broader market in the month of
January, with most of the disparity occurring before the middle of the month. The most common theory explaining this phenomenon is that individual investors, who are
income tax-sensitive and who disproportionately hold small
stocks, sell
stocks for
tax reasons at year end (such as to claim a
capital loss) and reinvest after the first of the year. The
January effect does not always materialize; for example, small stocks underperformed large stocks in
January 1982,
1987,
1989,
1990, and
2008.
