A pattern some investors have observed where stock prices, particularly smaller company stocks, tend to rise in January compared to other months. Theories for why this happens include tax-loss selling in December that reverses in January and year-end bonuses being invested. Like other seasonal patterns, it is not guaranteed to occur every year.
Over a 10-year period, small-cap stocks returned an average of 4 percent in January but only 1 percent in other months. A researcher noticed this pattern and called it the January effect. However, in some recent years, small-cap stocks actually fell in January, showing the pattern does not always hold true.
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