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Portfolio Rebalancing and the Turn‐of‐the‐Year Effect
Author(s) -
RITTER JAY R.,
CHOPRA NAVIN
Publication year - 1989
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.1540-6261.1989.tb02409.x
Subject(s) - portfolio , weighting , economics , risk–return spectrum , econometrics , financial economics , expected return , value (mathematics) , rate of return on a portfolio , modern portfolio theory , statistics , mathematics , medicine , radiology
This paper finds that, for the 1935–1986 period, the market's risk‐return relation does not have a January seasonal. The findings differ from those of other studies due to the use of value‐weighted, rather than equally weighted, portfolios. Inferences are sensitive to the weighting procedure because of the small‐firm return patterns in January. In particular, even in those Januaries for which the market return is negative, small‐firm returns are positive, and they are more positive the higher is beta. This is consistent with the portfolio rebalancing explanation of the turn‐of‐the‐year effect.