January effect

The January effect is a hypothesis that there is a seasonal anomaly in the financial market where securities' prices increase in the month of January more than in any other month. This calendar effect would create an opportunity for investors to buy stocks for lower prices before January and sell them after their value increases. As with all calendar effects, if true, it would suggest that the market is not efficient, as market efficiency would suggest that this effect should disappear.The January barometer ('As goes January, so goes the year') is sometimes called the January effect.Burton Malkiel asserts that seasonal anomalies such as the January Effect are transient and do not present investors with reliable arbitrage opportunities. He sums up his critique of the January Effect by stating that 'Wall Street traders now joke that the “January effect” is more likely to occur on the previous Thanksgiving. Moreover, these nonrandom effects (even if they were dependable) are very small relative to the transaction costs involved in trying to exploit them. They do not appear to offer arbitrage opportunities that would enable investors to make excess risk adjusted returns.'