The cross-section of January effect

Arbab Khalid Cheema (), Wenjie Ding () and Qingwei Wang ()
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Arbab Khalid Cheema: University of Northampton
Wenjie Ding: Sun Yat-Sen University
Qingwei Wang: Cardiff Business School

Journal of Asset Management, 2023, vol. 24, issue 6, No 6, 513-530

Abstract: Abstract We examine the cross-sectional January effect among portfolios that long sentiment-prone and difficult-to-arbitrage stocks and short sentiment-insensitive and easy-to-arbitrage stocks. These long-short portfolios on average earn over 20 times higher returns in January than in a non-January month. 85% of the cross-sectional January effect comes from its long legs, consistent with a sentiment-driven mispricing explanation. The cross-sectional January effect persists over time and remains significant after accounting for common risk factors and time-varying factor loadings.

Keywords: January effect; Investor sentiment; Limits to arbitrage; Cross-section; Stock returns (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/s41260-023-00324-1

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