Phenomenon that Stocks Exhibit Higher Returns in January

The excess returns for stock price in January have long been documented in literatures. Numerous studies have been carried out with the attempt to explore the root cause of this January anomaly. In this paper, three categories of explanations, namely price-pressure hypothesis, omitted risk factors and transaction costs, mismeasurement problems, are presented with both supportive and opposing arguments from empirical evidences. It can be concluded from the review of those studies that the existence of January Effect cannot be attributed to a single factor, and the reason for the presence as well as persistence of this anomaly is still a puzzle worth investigating.

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