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The January Effect across Volatility Regimes

Betty Agnani () and Henry Aray ()

No 07/04, ThE Papers from Department of Economic Theory and Economic History of the University of Granada.

Abstract: Using a Markov regime switching model, this article presents evidence on the well-known January effect on stock returns. The specification allows a distinction to be drawn between two regimes, one with high volatility and other 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 previous literature we find two major results: i) the January effect exists for all size portfolios. ii) the negative correlation between the magnitude of the January effect and the size of portfolios fails across volatility regimes. Moreover, our evidence supports a decline in the January effect for all size portfolios except the smallest, for which it is even larger.

Keywords: Markov Switching Model; Stock Returns; Seasonality; Size Portfolios. (search for similar items in EconPapers)
JEL-codes: C22 G14 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2007-12-31
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Journal Article: The January effect across volatility regimes (2011) Downloads
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