Do Arbitragers Exploit the January Effect?

Abstract

The January effect has been well documented since the 1970s. This study examines whether the January effect still exists and if it does, whether arbitrageurs exploit it. We find that the January effect is still persistently significant. Furthermore, we find that arbitrageurs appear to exploit the January effect, especially in good market years when the number of losing firms is limited and are therefore more easily identifiable. We also find that the January effect tends to be higher for losing stocks with high arbitrage costs relative to those with low arbitrage costs.

Keywords

January effect / tax-loss selling / arbitrage costs / market efficiency

RIGHTS & PERMISSIONS

2014 Higher Education Press and Brill