BUSI 4502 Lecture Notes - Lecture 5: January Effect, Growth Stock

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According of rozeff and kinney (1976), the january returns appeared to be 8 times higher than normal month(cid:495)s return, especially in the small-market capitalization. Previous studies have been made regarding the january effect and attempted explained underlying factors of the effect. However, the samples used are only equal weighted portfolio of small capitalization firms. Hence, this study is to determine if january effect also applies to large capitalization market and that the factors stated by other researches is still applicable. The hypothesis is that the january effect may arise from the prevalence of- end-of year (cid:494)window dressing(cid:495) by professional investors seeking to eliminate embarrassing loss from their portfolios prior to end of important reporting period. The sample data selected are from crsp value-weighted and equal-weighted portfolio, and also based on previous research by schwert (1990). The sample period is from 1802 to 2004, which includes the tax reform act of 1986.

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