Risk and the January effect

Sun, Qiang; Tong, Wei

doi:10.1016/j.jbankfin.2009.10.005

Cited by 49 publications

(38 citation statements)

References 51 publications

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“…In a recent study, Sun and Tong (2010) use the U.S. stock market index to reexamine whether January effect is caused by market volatility risk and find that market volatility is not significantly higher in January. Rather, they provide evidence that January effect is caused by the higher risk compensation in January.…”

Section: Introductionmentioning

confidence: 99%

“…Rather, they provide evidence that January effect is caused by the higher risk compensation in January. This study applies Sun and Tong (2010)'s methodology to Japanese market and tests whether their findings are applicable to the stock market outside the U.S. The reason to choose Japanese market is that prior literature provides evidence about the capital market integration between the two countries (Campbell & Hamao, 1992).…”

Section: Introductionmentioning

confidence: 99%

“…Following Sun and Tong (2010), we use GARCH models to investigate the relation between volatility risk and January effect for the Japanese stock market. Our findings are as follows.…”

Section: Introductionmentioning

confidence: 99%

“…Recently, Sun and Tong (2010) predict that investors will demand higher compensation for risk in January. They use a time-series GARCH approach to control the influence of size effect.…”

Section: Introductionmentioning

confidence: 99%

“…Gultekin and Gultekin (1983) and Kato and Schallheim (1985) provide evidence that the January effect exists in the Japanese stock market. We apply the methodology used by Sun and Tong (2010) to the Japanese market and test whether their risk compensation explanations can be extended to the Japanese stock market.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Volatility Risk and January Effect: Evidence from Japan

Li¹,

Gong²

2015

IJEF

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We use a time-series GARCH approach to investigate the January effect in the Japanese stock market. We find that the January effect is more pronounced before the anomaly is released to the public. We provide some evidence that the decline in the degree of January effect can be partially attributed to the long-term Japanese economic recession during the entire 1990s. We find that volatility risk is higher in January. But the higher volatility risk is not the primary cause for January effect. We find some evidence that risk compensation can explain the average market returns in January.Keywords: seasonality, January effect, Japanese stock market, volatility risk, GARCH model IntroductionIn a recent study, Sun and Tong (2010) use the U.S. stock market index to reexamine whether January effect is caused by market volatility risk and find that market volatility is not significantly higher in January. Rather, they provide evidence that January effect is caused by the higher risk compensation in January. This study applies Sun and Tong (2010)'s methodology to Japanese market and tests whether their findings are applicable to the stock market outside the U.S. The reason to choose Japanese market is that prior literature provides evidence about the capital market integration between the two countries (Campbell & Hamao, 1992).Following Sun and Tong (2010), we use GARCH models to investigate the relation between volatility risk and January effect for the Japanese stock market. Our findings are as follows. Consistent with Kato and Schallheim (1985), we show that the January effect is pronounced for the Japanese stock market over the period from 1975 to 2008 (Note 1). The January effect is greater over the sub-period from 1975 to 1984, the time before the market anomaly is released to the public. Additional evidence indicates that the January effect is more pronounced for the stock portfolios consisting of large firms in the sub-period 1985-2008. Consistent with Rogalski and Tinic (1986), we find that volatility risk is priced in January. But the volatility risk is not the cause for January effect. We also find some evidence that risk compensation can explain the market returns in January over the sub-period 1985-2008. This research adds to the literature on seasonal anomalies. We provide evidence that the degree of January effect declines after the release of the market anomaly. We argue that the long-term Japanese economic recession may also contribute to the lower degree of January effect from 1985 to 2008. We show that the market turnover declines sharply in the early 1990s and stays at a low level during the entire 1990s. Second, this research adds to literature by revealing that in the sub-period 1975-1984 volatility risk is lower but it is higher priced for large firms. It implies that investors can make more profits by bearing less risk if they take use of the anomaly. We provide evidence that the profit-making opportunity disappears in the following years. The result implies that market dysfunction does ...

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…Following Sun and Tong (2010), we use GARCH models to investigate the relation between volatility risk and January effect for the Japanese stock market. Our findings are as follows.…”

Section: Introductionmentioning

confidence: 99%

“…Recently, Sun and Tong (2010) predict that investors will demand higher compensation for risk in January. They use a time-series GARCH approach to control the influence of size effect.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Volatility Risk and January Effect: Evidence from Japan

Li¹,

Gong²

2015

IJEF

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The School’s Out effect: A new seasonal anomaly!

Coakley

Kuo

Wood

2012

The British Accounting Review

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The January effect in the foreign exchange market: Evidence for seasonal equity carry trades

Girardin

Namin

2019

Economic Modelling

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In this study, we investigate monthly seasonality in the foreign exchange market. Given the well-known recurrent higher returns in some month than in others in stock markets around the world, we consider it likely that a seasonal outperformance of a country's stock market over another is associated with similar seasonal patterns in capital flows and exchange rates. A seasonal profit (carry trade) opportunity can be created by the simultaneous appreciation of a country's currency and the outperformance of its stock market. By focusing on the world's key currency pairs, the US dollar-Deutsche mark and the US dollareuro, and by using a Markov-switching framework, we document persistent January and December effects in the foreign exchange market from 1971 to 2017. Analysis of the German-US stock returns differential and their bilateral capital flows reveal similar month effects in 65% of the whole sample.

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Risk and the January effect

Cited by 49 publications

References 51 publications

Volatility Risk and January Effect: Evidence from Japan

Volatility Risk and January Effect: Evidence from Japan

The School’s Out effect: A new seasonal anomaly!

The January effect in the foreign exchange market: Evidence for seasonal equity carry trades

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