January effect, Lunar New Year effect, and liquidity preference

Jinjing Liu

Global Finance Journal, 2025, vol. 67, issue C

Abstract: This study proposes a new explanation for the January and Lunar New Year effects. Using data from the United States (July 1963–December 2024) and China (January 1997–December 2024), I show that these effects are attributed to individual investors' reluctance to buy stocks before the (Lunar) New Year and their inclination to hold illiquid assets after the holiday. This explanation is supported by empirical evidence of a significant increase in the monetary base before the (Lunar) New Year and a substantial decrease after the (Lunar) New Year. These effects are particularly pronounced for highly sought-after stocks by individual investors, such as stocks with low institutional ownership, small market capitalization, and a history of poor performance.

Keywords: Abnormal returns; January effect; Lunar New Year effect; Liquidity preference (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:67:y:2025:i:c:s1044028325000912

DOI: 10.1016/j.gfj.2025.101164

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