The January Anomaly and Anomalies in January

Abstract

Prior research finds that stocks earn significantly higher returns in January compared to other months, with the effect most often attributed to tax-motivated selloffs in December leading to price reversion in January. We examine how patterns in turn-of-the-year performance impact prominent return anomalies. We find that short-term reversals strengthen while momentum changes sign at the turn of the year, and such patterns are more pronounced following years of recession and poor market performance, consistent with tax-loss selling playing a key role. Although additional factors are likely to contribute to the overall effect, no significant change in anomaly performance occurs midyear, casting doubt on window-dressing as a primary driving force.