Health
Should You Get More Aggressive in the Market Next Month?
ThirdAge News
For years, researchers have noticed stock prices frequently tick upward in the first month of the year. In a research paper at the University of Chicago, Donald Kiem dubbed the phenomenon The January Effect.
The effect is particularly pronounced with small-cap stocks -- those in companies worth $500 million or less. These have averaged a 3.51 percent return in January over the past 30 years, according to the research firm Wiesenberger/Thompson Financial. Mid-cap and large-cap stocks have returned 2.05 percent and 2.17 percent, respectively.
One possibility why this happens is that people sell losing stocks in December to reduce their tax bite, then put that money back to work in January. It's also theorized that mutual fund managers reposition their portfolios around this time, boosting the share price of their favorites.
No matter what the reason is, experts advise you to think twice before trying to use this knowledge to make a quick killing. "For one thing, the effect hasn't been so strong that it ensures a profit after paying commissions," said Anthony Cataldo, assistant professor of accounting at Western Michigan University and co-author of the book, "The January Effect and Other Seasonal Anomalies: A Common Theoretical Framework" (JAI Press, $82.50).
More importantly, "political uncertainty easily trumps the impact of something like the January Effect," Cataldo said.
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For Wall Street's future, see its past.
