August Effect On The August

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Numerous studies have confirmed a "January Effect". This effect is that returns for the month of January tend quite constantly to surpass returns for any other of the eleven months. This January effect seems most prominent during the first five trading days in January and the last trading day in December. nevertheless, the January effect continues to persist throughout the month. In addition, this January effect seems to have a greater effect on the shares of smaller companies than on the shares of larger firms. It emerges that much of the January effect can be explained by the tendency for December transactions to be seller initiated and complete at bid prices while January transactions are buyer commence and execute at offer prices.…show more content…
This effect does not seem to hold for high-grade corporate bonds or for the shares of the companies that issue these bonds. This seems to further support the tax loss selling hypothesis for the January effect. Contrasting the tax explanations for the "January Effect" are studies demonstrating that this effect exists in markets whose tax years differ from the calendar year. Moreover, the January effect in Canada existed before the introduction of a capital gains tax. Nevertheless, one might argue that U.S. markets are sufficiently influential in world markets that year-end tax selling in the U.S. may drive prices in other markets. On the other hand, studies have demonstrated a January effect in U.S. markets during the period 1877-1916, prior to the introduction of U.S. income taxes. Furthermore, Kihn [1996] presents evidence that municipal bond issues, which are free from federal taxation, experience a significant January effect. Thus, despite the popularity of the tax explanation, there still remain serious doubts regarding its ability to explain the January effect. Some market observers have also suggested that funds will "window dress" at year-end by buying winners (stocks that performed well earlier in the year) and by selling losers. These transactions occur at the end of the year so that their clientele can see from year-end financial statements that their funds held high-performing stocks and did
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