Hi, need to submit a 1250 words paper on the topic Friday and January Effect on the Stock Market. By conducting relevant studies on daily stock returns data of Dow Jones Industrial Average (DJIA) for the past ninety years Lakonishok and Smidt (1988) report on the patterns occurred in the US stock markets. This study concentrated on testing the real constant seasonal patterns of the US markets and concluded that almost 75% of the data for the period of 90 years showed a positive impact on the rate of stock returns during the second half of the month of December. The authors are confident in claiming that the second half of the month of December exhibits an extraordinary performance with respect to the stock returns in US stock exchanges.
However, Thaler (1987) has a different opinion to offer. According to him, there has been no positive impact of the stock returns in the DJIA during the second half of the month of December and therefore there can be no higher returns during the month of January from the DJIA index. He argues that DJIA index consists of the stock values of only larger firms and in order to find the real January effect it is necessary to consider the stock returns in respect of smaller firms only where the returns would be able to exhibit greater weight than their market value as consisted in the index. However, Thaler (1987) comments that about one-third of the annual returns have occurred during the month of January alone perhaps in respect of the stocks of smaller firms.
The study of Marrett and Worthington’s (2006) found that considerably higher stock returns occur in January only with respect to small cap and retail firms. By empirical data, the authors proved that the results of previous studies with respect to monthly seasonality can be considered only in so far these two classes of shares are concerned. Wang and Koutianoudis (n.d.) reiterate that during the month of January the investors are able to make larger gains in their dealings in stocks.
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