Does the January Effect or April Effect Exist when Value Weighted Industry Indexes are Used in Order to find it? Some Evidence from the London Stock Exchange

Abstract

Our research examines the tax-year-end effect in the UK stock market by using value-weighted industry indexes. The results provide with evidence that there is no such a seasonal pattern when using this set of data. This fact is likely to lead to the following logical conclusions. Firstly, the tax-year-end effect is not a large-cap firm story. This finding primary supports a plethora of other researches supporting the direct relationship between tax-year-end effect and small firm effect. It seems that large capitalization corporations usually do well during the fiscal year. Therefore, there is no need for investors to sell large-cap stocks in the last trading days of the fiscal year and then buy them back in the first trading days of the new tax-year. Clearly, our analysis provides with some evidence that there is no relationship between large-cap firms and tax-loss selling hypothesis which seems to be responsible for the tax-year-end phenomenon. Additionally, even if this happens, large representative firms have a high level of liquidity and make arbitrageurs' job easier.