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Year‐End Tax‐Induced Sales and Stock Market Seasonality
Author(s) -
GIVOLY DAN,
OVADIA ARIE
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03633.x
Subject(s) - monetary economics , stock (firearms) , sales tax , economics , business , value added tax , stock market , ad valorem tax , financial economics , tax reform , market economy , macroeconomics , geography , context (archaeology) , archaeology
ABSTRACT The paper relates two phenomena in the stock market: the high return during the month of January and the apparent existence of widespread sales of stocks for tax purposes towards the end of the fiscal year. The findings suggest that, due to the tax‐induced sales, the price of many stocks over the last 35 years was temporarily depressed in December but recovered in the following January. This price recovery is a major contributor to the high returns observed in January. The tax effect is present in firms of all sizes but much more pronounced for small firms. The analysis also indicates that a more precise identification of the tax‐switch candidates may prove that the tax‐induced sales are, in fact, the sole contributor to the high January's returns.