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

Determine the formula to solve payment needed for a car loan, Which formula...

Which formula would you use to solve for the payment needed for a car loan if you know the interest rate, length of the loan, and the borrowed amount?  Describe. To solve for k

Evaluation of credit policy, Q. What is Evaluation of Credit Policy? Ev...

Q. What is Evaluation of Credit Policy? Evaluation of Credit Policy: - A credit policy is prepared to maintain the investment in receivables at optimum level. Receivable Turnov

Compare and contrast the potential liability, Compare and contrast the pote...

Compare and contrast the potential liability of owners of proprietorships, partnerships (general partners), and corporations. The sole proprietor has limitless liability for ma

Example of relationship between bond price and time, Illustration    ...

Illustration      Discount bond (5 yr. bond with 10% coupon) (expected rate yield at 12%) Premium bo

Short-term volatility position, (a) The position of an agency that sells a ...

(a) The position of an agency that sells a callable coupon bond. We supposed that coupon bond has a maturity of 3 years and is callable only at the second year. (b) The market t

Which type of financing is appropriate to firm, This case provides the oppo...

This case provides the opportunity to match financing alternatives with the needs of different companies. It allows the reader to demonstrate a familiarity with different types of

How are the hibor, Q. How are the HIBOR, HSI and HSI futures related? T...

Q. How are the HIBOR, HSI and HSI futures related? The HIBOR and HSI are contrariwise related. So futures on HIBOR and HSI are as well inversely related. Display

Define how can estimate expected incremental cash flows, How do we estimate...

How do we estimate expected incremental cash flows for a proposed capital budgeting project? We calculate expected incremental cash flows for a planned project by estimating the

Advantages and disadvantages of foreign direct investment, What are the dis...

What are the disadvantages and advantages of Foreign direct investment (FDI) like opposed to a licensing agreement with a foreign partner? Answer:  The major advantage of FDI (

Advanced Accounting, Balance Sheets Peony Ltd. Aster Ltd. ...

Balance Sheets Peony Ltd. Aster Ltd. Assets: Cash $ 62,500 $ 25,000 Accounts receivable 187,500 200,000 Inventori

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