January Effect

Definition

Tendency of the stock market to rise between December 31 and the end of the first week in January. The January Effect occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over to a new year on January 1st these same investors quickly reinvest their money in the market, causing stock prices to rise. Although the January Effect has been observed numerous times throughout history, it is difficult for investors to profit from it since the market as a whole expects it to happen and therefore adjusts its prices accordingly.

Use January Effect in a sentence

You should try and factor in the january effect in to your trading schedule and adapt to the usual rise.

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During this year's January Effect, several thousand stock holders and stock market employees were generously rewarded with large payouts; some as high as one million dollars.

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I sold a number of securities in December for tax purposes but was quick to reallocate these funds at the beginning of the year to take benefit of the usual January effect.

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