Retail investors exonerated: the case of the January effect


  • The authors wish to thank Thomas Henker, Tom Smith, Eliza Wu, and Henry Yip, an anonymous referee and participants at the Australasian Banking and Finance conference for helpful comments, and SIRCA and the ASX for providing the data.


We dispel the belief that the January effect is due to retail investor trading. Previous studies suggest that retail investors, affected by behavioural biases and disproportionally invested in small capitalization stocks, are the source of the January effect. Furthermore, the literature regards retail investor trading and the tax-loss selling hypothesis as essentially the same explanation. We separate tax implications and market capitalization to show that retail traders are not the cause of the January effect. Our study is an important direct test of whether retail trading causes market anomalies.