Does trading of retail investors cause the January effect?
Date of this Version
We dispel the belief that the January effect, anomalous returns to small-capitalization stocks in the month of January, is a retail investor trading phenomenon. We use a market with a July-June tax year, Australia, to separate potential tax loss selling from other anomalous returns. Our results indicate that a January effect does persist in the Australian market, but it is not a result of retail investor trading. Furthermore, retail investor trading does not have a convincingly significant effect independent of market capitalization. Our study is important as a direct test of the assumption that retail trading causes market anomalies.
This document has been peer reviewed.