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Errors in Recorded Security Prices and the Turn-ofthe-Year Effect

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  • Thomson, James B.

Abstract

Errors in recorded security prices are a source of misspecification in the market model. If recorded price errors are sufficiently nonrandom, they result in biased returns and in biased and inconsistent estimates of market model regression coefficients. This paper argues that tax-induced flow-supply pressures cause end-of-the-year recorded price errors to be nonrandom enough to create the appearance of anomalous turn-of-the-year stock return behavior. Empirical tests of returns and market model regression coefficients during the turn-of-the-year period cannot reject this errors-in-variables explanation of the turn-ofthe-year effect.

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  • Thomson, James B., 1989. "Errors in Recorded Security Prices and the Turn-ofthe-Year Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(4), pages 513-526, December.
    • Handle: RePEc:cup:jfinqa:v:24:y:1989:i:04:p:513-526_01
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    Cited by:

    1. Meher Shiva Tadepalli & Ravi Kumar Jain, 2018. "Persistence of calendar anomalies: insights and perspectives from literature," American Journal of Business, Emerald Group Publishing Limited, vol. 33(1/2), pages 18-60, May.
    2. Mark Griffiths & Drew Winters, 1997. "On a Preferred Habitat for Liquidity at the Turn-of-the-Year: Evidence from the Term-Repo Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(1), pages 21-38, August.

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