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Further evidence of the November effect

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  • Ken Johnston
  • Chris Paul

Abstract

Tax-loss selling by individuals has long been thought to be a major factor driving the January effect. The Tax Reform Act of 1986 changed the tax-year end for mutual funds to October 31 and increased the marginal tax rate, creating a natural experiment allowing Bhabra, Dhillon, and Ramirez (1999) to empirically test the tax-selling hypothesis. They find empirical support for a postact November effect. However, a second paper by Gibson, Safieddine, and Titman (2000) finds empirical support for the November effect in only one post-act year, 1990. In this article, we respecify betas, calculate holding period returns over each tax year, construct portfolios with large, differences in mutual fund ownership, and test for the presence of a bid-ask spread bias. The empirical results offer evidence of a November effect but only in the first week of November. Copyright Springer 2005

Suggested Citation

  • Ken Johnston & Chris Paul, 2005. "Further evidence of the November effect," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(2), pages 280-288, June.
    • Handle: RePEc:spr:jecfin:v:29:y:2005:i:2:p:280-288
    DOI: 10.1007/BF02761559
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    References listed on IDEAS

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    1. Reinganum, Marc R., 1983. "The anomalous stock market behavior of small firms in January : Empirical tests for tax-loss selling effects," Journal of Financial Economics, Elsevier, vol. 12(1), pages 89-104, June.
    2. Gibson, Scott & Safieddine, Assem & Titman, Sheridan, 2000. "Tax-Motivated Trading and Price Pressure: An Analysis of Mutual Fund Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 369-386, September.
    3. Dyl, Edward A. & Maberly, Edwin D., 1992. "Odd-Lot Transactions around the Turn of the Year and the January Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(4), pages 591-604, December.
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    6. Bhardwaj, Ravinder K & Brooks, LeRoy D, 1992. "The January Anomaly: Effects of Low Share Price, Transaction Costs, and Bid-Ask Bias," Journal of Finance, American Finance Association, vol. 47(2), pages 553-575, June.
    7. Fant, L Franklin & Peterson, David R, 1995. "The Effect of Size, Book-to-Market Equity, Prior Returns, and Beta on Stock Returns: January versus the Remainder of the Year," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 129-142, Summer.
    8. Keim, Donald B., 1989. "Trading patterns, bid-ask spreads, and estimated security returns : The case of common stocks at calendar turning points," Journal of Financial Economics, Elsevier, vol. 25(1), pages 75-97, November.
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    Cited by:

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