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Humans like to find patterns in things that we do, leading to enduring interest in seasonal trends within the stock market. One of the most well-known of these is the ‘January Effect’—the idea that stock prices tend to rise more in January than in any other month. But is the January Effect still relevant in today’s era of globalised markets and algorithmic trading? This article examines its historical background, potential causes, and what recent data reveals about its significance.
What is the January Effect?
The January Effect refers to the observed tendency for stock prices, particularly those of small-cap companies, to increase at the start of the year. This phenomenon was first identified by Sidney Wachtel way back in 1942, who first noticed that stocks tended to see more significant gains in January than other months. The idea gained traction was likely due to its seemingly reliable pattern: after a…
