Articlegreen1983

Stock Return Seasonalities and the Tax-Loss Selling Hypothesis: Analysis of the Arguments and Australian Evidence

Philip R. Brown · Donald B. Keim · Allan W. Kleidon · Terry A. Marsh

319 citations0/0 files storedScholarlyCommons (University of Pennsylvania)

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

A ‘tax-loss selling’ hypothesis has frequently been advanced to explain the ‘January effect’ reported in this issue by Keim. This paper concludes that U.S. tax laws do not unambiguously predict such an effect. Since Australia has similar tax laws but a July–June tax year, the hypothesis predicts a small-firm July premium. Australian returns show pronounced December–January and July–August seasonals, and a premium for the smallest-firm decile of about four percent per month across all months. This contrasts with the U.S. data in which the small-firm premium is concentrated in January. We conclude that the relation between the U.S. tax year and the January seasonal may be more correlation than causation.

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References

1981The relationship between return and market value of common stocks 1979Risk measurement when shares are subject to infrequent trading 1981Misspecification of capital asset pricing 1976Capital market seasonality: The case of stock returns 1972The Market for Securities: Substitution Versus Price Pressure and the Effects of Information on Share Prices 1983The anomalous stock market behavior of small firms in January 1983New evidence on the nature of size-related anomalies in stock prices

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