The January effect across volatility regimes

Betty Agnani and Henry Aray ()

Quantitative Finance, 2011, vol. 11, issue 6, 947-953

Abstract: Using a Markov regime switching model, this article presents evidence of the well-known January effect on stock returns. The specification allows a distinction to be drawn between two regimes: one with high volatility and another with low volatility. We obtain a time-varying January effect that is, in general, positive and significant in both volatility regimes. However, this effect is larger in the high-volatility regime. In sharp contrast with most of the previous literature, we find two major results: (1) the January effect exists for all sizes of portfolio; (2) the negative correlation between the magnitude of the January effect and portfolio size fails across volatility regimes. Moreover, our evidence supports a slight decline in the January effect for all sizes of portfolio except the smallest, for which it is even larger.

Keywords: Markov switching model; Stock returns; Seasonality; Size portfolios (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Working Paper: The January Effect across Volatility Regimes (2007)
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DOI: 10.1080/14697680903540373

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