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The Buying and Selling Behavior of Individual Investors at the Turn of the Year



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    • School of Business Administration, University of Michigan. Philip L. Rettew, Jr. of Merrill Lynch's Market Analysis Department provided the data that make this paper possible. I would also like to thank Richard Andrews, Robert Ariel, Cliff Ball, Michael Bradley, Wayne Ferson, Greg Niehaus, Donald Keim, Krishna Ramaswamy, Nejat Seyhun, Jeremy Siegel, Michael Smirlock, Edward Snyder, and William Ziemba for useful comments, and Navin Chopra and Tae Park for research assistance. I would particularly like to thank Robert S. Hansen for his extensive comments. Helpful comments were also received in workshops at the University of Michigan, Washington University, the April 1986 Los Angeles TIMS/ORSA meetings, and the December 1987 AFA meetings. This research was supported by a summer research grant from the University of Michigan Business School


The average returns on low-capitalization stocks are unusually high relative to those on large-capitalization stocks in early January, a phenomenon known as the turn-of-the-year effect. This paper finds that the ratio of stock purchases to sales by individual investors displays a seasonal pattern, with individuals having a below-normal buy/sell ratio in late December and an above-normal ratio in early January. Year-to-year variation in the early January buy/sell ratio explains forty-six percent of the year-to-year variation in the turn-of-the-year effect during 1971–1985.

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