ABSTRACT
The abnormal returns for stock prices observed in January (known as the "January effect") are evidence of the predictability of returns. This anomaly is observed in many financial markets around the world.Its main explanation is the booking of capital losses in an effort to reduce taxes payment. Thus, this study aims to assess the existence of the "January effect" in a cross-sectional analysis of monthly returns of shares of Brazilian companies in the period between 1996-2013 (both included. Previous studies which have investigated this effect in the Brazilian market took periods prior to 1996, when there was no capital gains tax in Brazil. In the applied methodology, the econometric model controls for other anomalies (momentum effect and short term reversion), which also influence the autocorrelation of returns, and can not, therefore, be omitted. In the analysis reported here, the "January effect" was identified, and with greater intensity when the negative return in December was greater, consistent with the hypothesis of tax management of capital gains. No evidence was identified in the "January effect" in the subsample of firms that trade ADRs on the NYSE, composed of companies with higher market value, and more influenced by foreigner investors.
Keywords:
January effect; efficient markets; anomaly
