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The Scrutinized-firm Effect, Portfolio Rebalancing, Stock Return Seasonality, and the Pervasiveness of the January Effect in Canada

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  • George Athanassakos

    (UWilfrid Laurier University, Canada)

Abstract

This article examines whether seasonality is present in the excess returns of low risk Canadian firms in safe industries for a sample of firms that are highly scrutinized and visible and uses such tests as the foundation to empirically test competing explanations of stock market seasonality, namely, the tax-loss selling hypothesis and the gamesmanship hypothesis. The tests cover the period 1980 to 1998. For a sample of highly scrutinized and visible firms strong seasonality in excess returns is reported. However, the firms in our sample have unusually low excess returns in January and returns adjust upwards over the remainder of the year. The results hold even after we control for various risk differences among the stocks of our sample. Further, this article’s findings imply that the January effect is not as pervasive across risk classes and industry sectors as earlier studies using aggregate data have shown it to be. The disaggregated data of this study provide evidence in support of the gamesmanship hypothesis, but not the tax-loss selling hypothesis. Whenever a January effect is observed, the last quarter of the year tends to be weak for those companies in our sample that experienced a strong January. The opposite is true when a January effect is not evident, as the gamesmanship hypothesis would predict.

Suggested Citation

  • George Athanassakos, 2002. "The Scrutinized-firm Effect, Portfolio Rebalancing, Stock Return Seasonality, and the Pervasiveness of the January Effect in Canada," Multinational Finance Journal, Multinational Finance Journal, vol. 6(1), pages 1-27, March.
    • Handle: RePEc:mfj:journl:v:6:y:2002:i:1:p:1-27
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    References listed on IDEAS

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    Cited by:

    1. Loc Dong Truong & H. Swint Friday, 2021. "The January Effect and Lunar New Year Influences in Frontier Markets: Evidence from the Vietnam Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 11(2), pages 28-34.

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    More about this item

    Keywords

    firm visibility; gamesmanship hypothesis; January effect; portfolio rebalancing;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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