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January Effect Definition

Definition

The word January effect can be utilized to refer to a historical tendency, where the values of securities growth in the month of January. The January effect is classified as another fashion, because it’s relatively short in duration.

Explanation

Financial markets, like bonds, commodities, and stocks, and on average demonstrate that an upward or downward trend with time. The January effect is just a second tendency that distinguishes itself as the biggest annual rise at a financial market, or even a single collateral, for the rest of the existing twelve months.

The January effect is thought to be the consequence of 2 variables:

  • An escalation in buying securities after a selloff at the month of December, as investors lock capital profits or losses to be reported in their federal tax yields.
  • The payment of year end incentives for employees, which invest money in the stock exchange.

Since human investors are much more inclined to buy smallcap stocks, the January effect is supposed to impact those securities longer than mid and large cap stocks.