Macroeconomic Seasonality and the January Effect



    Search for more papers by this author
    • International Monetary Fund. I am grateful to Wake Epps for his guidance and suggestions, and to the editor (René Stulz) and an anonymous referee for many valuable comments.


Many financial markets researchers have sought an explanation for the role of January in stock returns. Any explanation of this phenomenon that is consistent with rational pricing must specify a source of seasonality in expected returns. The pervasive seasonality in the macroeconomy is an appealing possibility. A multifactor model that links macroeconomic risk to expected return is found to show substantial seasonality in expected returns. This model accounts for the seasonality in average returns, while the capital asset pricing model cannot.