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Rev Fin 1990; 3:255-280
© 1990 the Society for Financial Studies

Article

Return seasonality in stocks and their underlying assets: tax-loss selling versus information explanations

GA Brauer1 and EC Chang2
1 Department of Finance and Business Economics, Graduate School of Business Administration, DJ-10, University of Washington, Seattle, WA 98195, USA
2 University of Maryland, Maryland, USA

Abstract

Results of tests contrasting tax-loss selling with intertemporal information variation as explanations of the January seasonal in stock returns are reported. Closed-end fund shared display the typical size-related January seasonal while their net asset values do not. Interpreting the net asset value return as a proxy for information about under-lying assets, this result indicates information variation is not a necessary condition for the January effect in stocks. The share returns at the turn of the year are negatively related to their mean preceding year returns and positively related to the standard deviations of their preceding year returns. These results are consistent with tax-loss selling.


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