Does the January Effect Still Exists?

Gerardo “Gerry” Alfonso Perez

doi:10.5430/ijfr.v9n1p50

Abstract

The issue of the January Effect has attracted a lot of interest by both practitioners and researchers. The idea that stock returns in January are statistically bigger than in other months was first presented several decades ago. This study analyzes the issue of the January effect in a systematic and global way of studying the performance of 106 indexes in 86 countries and jurisdictions. It was observed that while this effect can still be appreciated in some markets it would appear that it is decreasing globally over time. It was also found that there appears to be an Inverted January Effect in several markets with the returns in January being lower than the returns in some other months. This analysis was performed with nonparametric tests. The hypothesis that the returns of the indexes do not follow in general a normal distribution was also confirmed with several tests.

Highlights

There are a large number of market abnormalities identified both in the academic literature as well as by practitioners
The January Effect is typically understood as the opposite effect with January having bigger returns than other months
While there are markets, such as for instance Nigerian Stock Exchange Index (Nigeria), in which there continues to appear to exist the traditional January Effect there seems to be a global trend for the January Effect to gradually dissipate

Summary

Introduction

There are a large number of market abnormalities identified both in the academic literature as well as by practitioners. Since several authors, such as (Haugen, 1988), (Thaler, 1987), (Jones, 1989), (Moller, 2008), (He, 2011), have analyzedthis issue.The existence of a January effect, as many other market abnormalities, has been used as an argument supporting the idea that markets are not completely efficient. The idea behind this approach is that if such market abnormality exist and can be exploited for trading purposes at least in principle, it would be possible to outperform the market in a consistent way, which would contradict the market efficiency hypothesis. The scope of this article it is not to study the link between abnormal returns and market efficiencies but to analyze, in a global basis, what markets present this phenomenon

Methods

Results

Conclusion