An examination of the January effect in Canadian stock market

Abstract

This paper tests the existence of abnormal returns based on the January effect in Canada, and attempts to verify, if any relationship between firm size and the January effect. A regression model with dummy variables was used to examine the January effect from 2000 to 2013. The January effect, which is also called the turn-of-the-year effect, is a trend that during the first five days of January, stock returns, particularly the small-cap firms are significantly higher than any other time periods of the year. There are several possible explanations for the January effect. The most popular ones are tax-loss selling and window dressing. This paper found no January effect on any sized companies in Canada from the period 2000 to 2013. As the January effect does not hold for most of the firms in Canadian stock market, as a result , there are no abnormal returns for investors to take advantage of.