January Effect

AAA

DEFINITION of 'January Effect'

A general increase in stock prices during the month of January. This rally is generally attributed to an increase in buying, which follows the drop in price that typically happens in December when investors, seeking to create tax losses to offset capital gains, prompt a sell-off.

INVESTOPEDIA EXPLAINS 'January Effect'

The January effect is said to affect small caps more than mid or large caps. This historical trend, however, has been less pronounced in recent years because the markets have adjusted for it. Another reason the January effect is now considered less important is that more people are using tax-sheltered retirement plans and therefore have no reason to sell at the end of the year for a tax loss.

RELATED TERMS
  1. Taxes

    An involuntary fee levied on corporations or individuals that ...
  2. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  3. October Effect

    The theory that stocks tend to decline during the month of October. ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Weekend Effect

    A phenomenon in financial markets in which stock returns on Mondays ...
  6. Monday Effect

    A theory that states that returns on the stock market on Mondays ...
RELATED FAQS
  1. What is considered a good turnover ratio for a mutual fund?

    What is considered a good turnover ratio for a mutual fund depends on the fund's composition and structure, its stated investment ... Read Full Answer >>
  2. Is it more beneficial to invest in a blue chip stock or a penny stock?

    Penny and blue-chip are terms used to describe a stock's valuations and statures. Penny stocks are generally the stocks of ... Read Full Answer >>
  3. What is the difference between a penny stock and a small cap stock?

    A penny stock and a small-cap stock represent the shares of a company with low market capitalizations. However, there is ... Read Full Answer >>
  4. How can I tell whether a particular small cap stock has a positive investment outlook?

    The investment outlook for a small-cap stock is determined by operational outlook and current stock price. The operational ... Read Full Answer >>
  5. Why should I be looking at small cap stocks as a potential investment?

    Investors should look at small-capitalization stocks for upside growth potential and portfolio diversification. Despite these ... Read Full Answer >>
  6. How risky are small cap stocks?

    In terms of equity categories based on market capitalization, small caps are the fourth riskiest group out of five. The other ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Stock Basics Tutorial

    If you're new to the stock market and want the basics, this is the tutorial for you!
  2. Investing Basics

    Seven Market Anomalies Investors Should Know

    Though they're unpredictable and heavily contested, market anomalies can often work in an investor's favor.
  3. Personal Finance

    The Frosty, Festive World Of Investing

    From Santa Claus rallies to evergreen loans, Wall Street can be a veritable winter wonderland for investors.
  4. Active Trading Fundamentals

    An Introduction To Behavioral Finance

    Curious about how emotions and biases affect the market? Find some useful insight here.
  5. Options & Futures

    January Effect Revives Battered Stocks

    Make sure you buy in low to ride this phenomenon for all it's worth.
  6. Investing

    Making Sense Of Market Anomalies

    Stocks sometimes thwart the efficient market theory by showing some very unusual patterns.
  7. Active Trading Fundamentals

    Behavioral Finance

    Learn the science behind irrational decision making and how you can avoid it.
  8. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  9. Stock Analysis

    Is Smaller Better When Investing Overseas?

    When it comes to global stocks think small (and not in a market-cap sense). Smaller developed nations have outperformed larger rivals by a big margin.
  10. Investing Basics

    Is a Stock's Trade Volume Important?

    Stock volume is easy to calculate but understanding its importance is a little more involved. Take the time because it's a worthwhile investing tool.

You May Also Like

Hot Definitions
  1. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  3. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!