New Evidence on The January Effect Before Personal Income Taxes

Authors

  • STEVEN L. JONES,

  • WINSON LEE,

  • RUDOLF APENBRINK

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    • Jones and Lee are from the Department of Banking and Finance, The University of Georgia. Apenbrink is from the University of Bielefeld, Germany. The authors wish to thank Warren Bailey, Ray DeGennaro, Josef Lakonishok, Chuck Liano, Mike Long, John McConnell, Harold Mulherin, Jaxk Reeves, Louis Scott, and Dennis Sheehan, as well as participants at the University of Georgia Finance Seminar and the 1990 Western Finance Association meetings.

ABSTRACT

We examine the returns of stocks in Cowles Industrial Index before and after the introduction of personal income taxes in 1917. This is distinct from earlier studies because we cross-sectionally analyze the relationship between the returns of the individual stocks and measures of tax-loss selling potential and size. We find that excess returns at the turn-of-the-year and for the month of January were not significant until after 1917. These results provide strong support for the tax-loss selling hypothesis as an explanation for the January seasonal in the returns of small firms.

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