Can Tax-Loss Selling Explain the January Seasonal in Stock Returns?


  • K. C. CHAN

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    • Faculty of Finance, The Ohio State University. I thank Warren Bailey, James Bodurtha, Stephen Buser, Nai-fu Chen, George Constantinides, Rene Stulz, and especially the referee for helpful comments.


This paper analyzes the tax-loss selling hypothesis as an explanation of the January seasonal in stock returns and argues that rational tax-loss selling implies little relation between the January seasonal and the long-term loss. Empirical results show that the January seasonal is as strongly related to the long-term loss as it is to the short-term loss. The evidence is inconsistent with a model that explains the January seasonal by optimal tax trading.