Does the January Effect Still Exists?

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.

Historical evolution of monthly anomalies in international stock markets

“…Our results are consistent with the existing literature. The fact that a complete history of the various markets was used adds weight to the work of Marquering et al (2006), Perez (2018) and Rossi & Gunardi (2018), amongst others, who in the main highlighted the disappearance of anomalies over time. Or in other words, that markets evolve to become more efficient.…”

“…Post the initial wave of the confirmation of the January effect, more evidence from recent studies is mixed. Suggesting that the January effect has since disappeared in advanced markets (see Marquering et al (2006) and Perez (2018)). For example, Floros (2008) found no evidence of the January effect in the Greek stock market, Rossi & Gunardi (2018) found no evidence of the January effect in advanced markets between 2001 and 2010, and Giovanis (2009) found no evidence of the January effect in 36 out of 55 stock markets.…”

“…The Efficient Market Hypothesis (EMH) predicts that stock prices reflect all available information about the value of a firm, and therefore there is no possibility of economic profits (see Fama (1965) and Fama (1970)). However, Rossi (2015) observes that after years of investigation in all its forms (weak, semi-strong, and strong forms) and considerable controversy, in recent years scholars have been continuing to find evidence contradicting the EMH (for example see Klock (2014) and Perez (2018)). This is, however, not a recent realisation as others have shown that the predictions of the EMH are not absolute (see Grossman & Stiglitz (1980), Shiller (2000), Shiller (2003), and Akerlof & Shiller (2009)).…”

“…That is, the analogous behaviour of stock market returns varies over time is not omnipresent as suggested by the Efficient Market Hypothesis. Although questions around the evolution of the January effect specifically are not new, Perez (2018), Gupta (2017) and Patel (2016) continue to investigate the evolution of the January effect in advanced and emerging markets. Others such as Ahmed & Boutheina (2017) and Gupta (2017) focused on the evolution of other monthly anomalies such as the December effect and the Mark Twain effect.…”

Testing of January Effect, the Day of the Week Effect, and Size Effect: a Study of LQ45 Stocks in Indonesia Stock Exchange

“…On the day of the week anoma-ly, there is a difference for each daily return for one week. Perez (2018) has researched and analyzed the existence and issue of the January Effect in a systematic and around the world, studying the performance of 106 indexes in 86 countries and jurisdictions. It is found that some studies detect the January Effect, and some do not.…”