The January Anomaly: Effects of Low Share Price, Transaction Costs, and Bid-Ask Bias

Authors

  • RAVINDER K. BHARDWAJ,

  • LEROY D. BROOKS

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    • Bhardwaj is from Winthrop College and Brooks is from the University of South Carolina. The authors wish to thank Scott Harrington, Edward Miller, William Moore, Rodney Roenfeldt, Ronald Rogers, René Stulz (editor) and an anonymous reviewer for helpful comments. We are grateful to the College of Business Administration at the University of South Carolina for its financial support.

ABSTRACT

The January effect is primarily a low-share price effect and less so a market value effect. In the recent 1977–1986 period, after-transaction-cost raw and excess January returns are lower on low-price stocks than on high-price stocks. Failure of informed traders to eliminate significantly large before-transaction-cost excess January returns on low-price stocks is potentially explained by higher transaction costs and a bid-ask bias. At the least, the January anomaly found in prior tests is not persistent, and thereby, not likely to be exploitable by typical investors.

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