Calendar studies, Financial Management

Assignment Help:

Calendar Studies

These attempted to predict rates of return during a calendar year and examine if there is any particular observable pattern in the rates of return on the stocks that would allow investors to predict returns on stocks in advance. They also test for the presence of any irregularities. Besides "January Anomaly", they also consider a variety of other daily and weekly regularities.

The January Anomaly: This was proposed as a unique trading rule to make use of tax selling. Most investors are observed to adopt tax selling at the end of the year to establish losses on stocks that have declined and re-acquire the same shares in the next year or buy other stocks that are attractive. This tendency of the investors leads to a downward pressure on the stock prices during the end of the year (November and December) and positive pressure during the beginning (January) of the next year. This is termed January Anomaly. The advocates of the efficient markets believe that this kind of seasonal pattern does not last for a longer period as it is likely to be eliminated by arbitrageurs' action of buying in December and selling in January of the next year.

Several studies conducted by different people at different points of time supported this January Anomaly. December trading volume was found to be abnormally high for the stocks that have declined during the previous year and the volume was low for stocks that have experienced large gains.

Another observation confirmed that the price patterns on the last day of December and the first four days of January support the anomaly. The presence of transaction costs does not deter the arbitrageurs from engaging in the January tax selling anomaly.

One of the studies indicated the existence of a negative relationship between size and abnormal returns. More than 50% of the January effect would be concentrated in the first week of trading, particularly on the first day of the year. In addition, a non-linear relationship is found to exist between dividend yields and stock returns in January. A strong seasonal pattern was also observed because the dividend yield-stock return relationship existed only during January. The year end effect was also observed for small firms particularly during the last day of the year with above normal trading activity continuing in January.

All the studies reveal that the January Anomaly is intriguing because it is pervasive. The seasonal impact also influences the dividend yield effect and trading volume, and a tax-loss explanation of this anomaly has received a mixed support.

 


Related Discussions:- Calendar studies

What spot exchange should one forecast 5 years into future, The current spo...

The current spot exchange rate is Dr240/$1.00. Long-run inflation in Greece is calculated at 8 percent yearly and 4.5% in the United States.  If PPP is expected to hold among the t

Determine in brief about venture capitalists, Determine in brief about Vent...

Determine in brief about Venture capitalists Venture capitalists are organisations which take on risky business ventures. They provide finance for and generally require a high

Cost of retained earnings , Cost of Retained earnings (K ) Retained ea...

Cost of Retained earnings (K ) Retained earnings are that portion of EPS that is retained by the firm.  This may be measured as the rate of return which the existing share hol

Mortgage-backed bonds, Unlike the mortgage pass-through securities, t...

Unlike the mortgage pass-through securities, the mortgage-backed bonds are debt obligations of the mortgage originator. Every issue of such bonds should be backed

How does the net present value relate to value of the firm, How does the ne...

How does the net present value relate to the value of the firm? The net present value is the dollar amount of the amend to the value of the firm if the project under considerat

Define advantage and disadvantage of internal rate of return, What are the ...

What are the advantages and disadvantages of the internal rate of return method? The internal rate of return (IRR) method is a discounted cash flow method and a number expressed

Global bond sectors and instruments, Treasuries are the securities that the...

Treasuries are the securities that theUS government issues for the completion of government projects. They are of different types like, treasury bills, treasury bon

Working of australian securities and investment commission, Working of ASIC...

Working of ASIC ASIC as an independent government body enforces and regulates company and financial services laws to protect consumers, investors and creditors. It keeps the pu

Cash flows vs accounting profits, Do you provide assignment help on Cash Fl...

Do you provide assignment help on Cash Flows Vs Accounting Profits. Do you have experts in this topic? Please suggest me if you can give me help with this topic.

Define the term- cash purchases, Define the term- Cash purchases     Shar...

Define the term- Cash purchases     Shareholders of the target company are bought out completely and have no further stake in business. This is good if predator shareholders want

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd