Insider trading, tax-loss selling and the turn-of-the-year effect

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Abstract

We examine the turn-of-the-year effect (January effect) in UK listed securities and find that it is significant but not persistent through time. In contrast to the US studies, equities of all sizes are affected. Although important, we reject the hypothesis that seasonalities in insider trading are the main determinant of the turn-of-the-year effect. In addition, the tax-loss selling hypothesis, which is commonly thought to be a cause of the January effect in the US, is tested with the April year-end for UK investors. We find evidence of excess abnormal share price returns. However, this does not impact upon excess abnormal share price returns in January. Our results are important because they provide an insight into stock return seasonality in the UK and reject some widely held beliefs on this issue.
Original languageEnglish
Pages (from-to)73-84
Number of pages11
JournalInternational Review of Financial Analysis
Volume11
Issue number1
DOIs
Publication statusPublished - 2002

Keywords

  • insider trading
  • January effect
  • tax-loss selling
  • financial management
  • taxation

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