The so-called January effect for the stock market (S&P 500) looks quite weak when measured on a monthly basis, and it doesn’t offer much more encouragement as a signal for the 1-year-ahead return horizon either.
Daily Archives: January 4, 2012
January Effect Update (And Mea Culpa)
In an earlier post today, I reviewed the thin evidence for the January effect as defined as a month that’s expected to shine with above-average returns. Debunking this idea still looks good based on the past 10 or 20 years, but it turns out that the numbers are even worse than I initially reported. In the previous post I mistakenly reported the sum of monthly returns for each monthly period—my apologies to readers. After correcting the error by computing the standard average of monthly returns (see the new chart below), I find that the January effect is even more elusive.
Looking For The January Effect
Once upon a time investors believed in the January effect. The story is that there’s gold in them ‘thar hills for equity returns during the first month of the year. The idea that January dispenses richer results than the other months dates to economist Sidney Wachtel’s 1942 study on seasonality effects in the market. It’s been a winning idea ever since, judging by all the attention it receives. As an investment concept, however, it looks distinctly unimpressive, or so recent history suggests.