Quick Finance Tip – Calendar Time Series Anomaly

​For calendar anomalies, the “January Effect” (aka turn-of-the-year effect) contradicts the efficient market hypothesis because excess returns in January are not attributed to any new and relevant information. Reasons for this anomaly may include tax-loss selling (typically for small cap companies) where investors sell “loser” securities to reduce their tax liabilities creating capital losses. However, when the price depresses, they buy them at attractive prices in January. However, this tax-loss selling may account for a portion of January abnormal returns. Another explanation could be window dressing where a portfolio manager would drop riskier securities before the year end, and repurchase the riskier assets after the yearly statement to increase returns. However, once an appropriate adjustment for risk is made, the January “effect” does not produce abnormal returns. Other calendar anomalies include (i) turn-of-the-month effect, (ii) day-of-the-week effect, (iii) weekend effect, and (iv) holiday effect.