Salimi, Wang, Yakovlev, and Roychoudhury provide further evidence that the January and December effects. The authors describe these effects as:
"When investors do not sell winner stocks in December but postpone their sale to January so that capital gains will not be realized in the current fiscal year, the "winners" appreciate in December. This is called the December effect.While this has been exained before, this paper brings some more sophisticated mathmatical tools into play. And their findings?
The January effect is the tendency of the stock market to rise between December 31 and the end of the first week in January. The January Effect occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes."
"The general conclusions that can be drawn from our estimates are that there exist significant December and January effects, and the momentum (represented by cumulative returns), liquidity, and tax incentives are among significant factors affecting monthly returns in the US stock market."Which supports the previous understanding perfectly.
Salimi, Wang, Yakovlev, and Roychoudhury. December and January Effects around the Globe: Evidence from US and International Panel Data. 2005, Working paper: