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The cross-section of January effect

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  • Arbab Khalid Cheema

    (University of Northampton)

  • Wenjie Ding

    (Sun Yat-Sen University)

  • Qingwei Wang

    (Cardiff Business School)

Abstract

We examine the cross-sectional January effect among portfolios that long sentiment-prone and difficult-to-arbitrage stocks and short sentiment-insensitive and easy-to-arbitrage stocks. These long-short portfolios on average earn over 20 times higher returns in January than in a non-January month. 85% of the cross-sectional January effect comes from its long legs, consistent with a sentiment-driven mispricing explanation. The cross-sectional January effect persists over time and remains significant after accounting for common risk factors and time-varying factor loadings.

Suggested Citation

  • Arbab Khalid Cheema & Wenjie Ding & Qingwei Wang, 2023. "The cross-section of January effect," Journal of Asset Management, Palgrave Macmillan, vol. 24(6), pages 513-530, October.
    • Handle: RePEc:pal:assmgt:v:24:y:2023:i:6:d:10.1057_s41260-023-00324-1
    DOI: 10.1057/s41260-023-00324-1
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    More about this item

    Keywords

    January effect; Investor sentiment; Limits to arbitrage; Cross-section; Stock returns;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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