What Is the January Effect?

  2014-01-21 10:40:00


The January effect is a term to describe a phenomenon in the financial markets in which securities prices increase during the month of January. The concept was first introduced in 1942 through a paper by Sidney Wachtel. As the January effect has become a more well-publicized phenomenon, it has led to the "Santa Claus rally." The idea is that investors anticipate stocks moving up in January and try to get out in front by buying around Christmas.

What causes the January effect?

Several scholarly papers have been written since 1942 suggesting various drivers for the January effect, but there is no definitive evidence of an exact or single cause. Two of the most popular sources on the subject are "The Incredible January Effect: the stock market's unsolved mystery" by Robert Haugen and Josef Lakonishok (published in 1987), and a 2005 paper from a team at William & Mary. A few of the driving factors often mentioned as causes of the January effect are:

Editor's note: This story by John Darsie originally appeared on T3Live.com.

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