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Stochastic dominance, tax-loss selling and seasonalities in Sweden

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  • Magnus Dahlquist
  • Peter Sellin

Abstract

This paper examines two potential explanations of the January effect in the Swedish stock market for the period from January 1919 to December 1994; The tax-loss selling hypothesis and the omitted risk factor hypothesis. We document significantly higher returns in both January and July over the sample period. In addition, there is a seasonal pattern in the variances of the monthly returns. There also seems to be an interaction between the variance and the mean effects. We identify six different tax regimes where capital gains and losses are treated differently, and test whether tax regime changes have an influence on the January effect. Price pressures and rebounds implied by the tax-loss selling hypothesis are also analysed. Finally, we use the concept of stochastic dominance to study if the higher returns are due to compensation to investors for bearing higher risk. However, we find no support for either of the proposed hypotheses.

Suggested Citation

  • Magnus Dahlquist & Peter Sellin, 1996. "Stochastic dominance, tax-loss selling and seasonalities in Sweden," The European Journal of Finance, Taylor & Francis Journals, vol. 2(1), pages 1-19.
  • Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:1-19
    DOI: 10.1080/135184796337571
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    References listed on IDEAS

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    Cited by:

    1. Al-Khazali, Osamah M. & Koumanakos, Evangelos P. & Pyun, Chong Soo, 2008. "Calendar anomaly in the Greek stock market: Stochastic dominance analysis," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 461-474, June.
    2. Al-Khazali, Osamah & Mirzaei, Ali, 2017. "Stock market anomalies, market efficiency and the adaptive market hypothesis: Evidence from Islamic stock indices," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 190-208.
    3. Al-Khazali, Osamah, 2014. "Revisiting fast profit investor sentiment and stock returns during Ramadan," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 158-170.

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