January effect in Finnish stock market 2010-2019
Maxhuni, Drilon (2022-05-13)
Maxhuni, Drilon
13.05.2022
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2022051335089
https://urn.fi/URN:NBN:fi-fe2022051335089
Tiivistelmä
The thesis' goal is to investigate the occurrence of the January effect in the Finnish stock market from 2010 to 2019. The January effect was tested on a daily basis by looking at logarithmic stock returns. The research method was least squares linear regression.
At this thesis we tested daily returns from the period of 2010-2019 for four different indices to test January effect. Indices are OMX Small Cap GI, OMX Mid Cap GI, OMX Large Cap GI and OMX Helsinki GI. In all indices despite OMX Helsinki GI we had 2511 observation during period of 2010-2019. OMX Helsinki GI has 2153 observations.
The January effect is a stock market calendar anomaly in which stock returns peak in January. In previous research, the January effect has been linked to the effect in small-cap stocks. Because of the seasonal nature of the anomaly, the January effect has been found to contradict the efficient market hypothesis, as the high stock returns in January do not follow a random pattern but are predictable.
Tax and window dressing hypotheses are thought to be the main causes of the January effect. Investors will sell their loss-making shares in December, according to the tax hypothesis, in order to reduce their tax burden. According to the Window dressing hypothesis, institutional investors will sell loss-making shares in December in order to improve the performance of their investment portfolios for reporting purposes. Hypothetical trading will end in January, when stock prices will begin to rise, causing the stock market to experience a January effect.
The thesis' findings strongly suggest that the January effect occurs in the Finnish stock market. Especially when testing the OMXH Small Cap GI and OMXH Mid Cap GI indices. The January effect has been observed in the shares of small market value companies in particular. The January effect was also discovered to be stronger in early January.
At this thesis we tested daily returns from the period of 2010-2019 for four different indices to test January effect. Indices are OMX Small Cap GI, OMX Mid Cap GI, OMX Large Cap GI and OMX Helsinki GI. In all indices despite OMX Helsinki GI we had 2511 observation during period of 2010-2019. OMX Helsinki GI has 2153 observations.
The January effect is a stock market calendar anomaly in which stock returns peak in January. In previous research, the January effect has been linked to the effect in small-cap stocks. Because of the seasonal nature of the anomaly, the January effect has been found to contradict the efficient market hypothesis, as the high stock returns in January do not follow a random pattern but are predictable.
Tax and window dressing hypotheses are thought to be the main causes of the January effect. Investors will sell their loss-making shares in December, according to the tax hypothesis, in order to reduce their tax burden. According to the Window dressing hypothesis, institutional investors will sell loss-making shares in December in order to improve the performance of their investment portfolios for reporting purposes. Hypothetical trading will end in January, when stock prices will begin to rise, causing the stock market to experience a January effect.
The thesis' findings strongly suggest that the January effect occurs in the Finnish stock market. Especially when testing the OMXH Small Cap GI and OMXH Mid Cap GI indices. The January effect has been observed in the shares of small market value companies in particular. The January effect was also discovered to be stronger in early January.