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|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|13435||2009||22 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : The Quarterly Review of Economics and Finance, Volume 49, Issue 3, August 2009, Pages 1172–1193
Using improved methodology and an expanded research design, we examine whether the small firm/January effect (Keim, D. B. (1983). Size-related anomalies and stock return seasonality: further empirical evidence. Journal of Financial Economics 12:13–32), is declining over time due to market efficiency. First, we find that January returns are smaller after 1963–1979, but have simply reverted to levels that existed before that time. Second, we show that the January effect is not limited to mature markets but also appears in firms trading on the relatively new NASDAQ exchange in the 1970s. Third, trading volume for small firms in December and January is not different from other months, implying that traders are not actively arbitraging the anomaly. Together, our results suggest that this anomaly continues to defy rational explanation in an efficient market.
In a rational and efficient market a regularly occurring opportunity to capture abnormally high returns should not be sustainable because upon learning of the opportunity investors should quickly arbitrage it away. Recent research provides evidence that the January effect, a capital markets anomaly in which equity returns are significantly higher in January than during the other 11 months of the year, is declining (Gu, 2003 and Schwert, 2003) or even disappearing completely (Mehdian & Perry, 2002), albeit slowly, in the years after 1980. Gu (2003) argues that the reason for the decline may be “…a trend toward market efficiency,”1 while Mehdian and Perry (2002) state that the “…disappearance of the January effect may imply that the US stock markets are gradually becoming more ‘weakly efficient’ in the post-crash period.”2 In contrast, Haugen and Jorion (1996) find that the January effect does not significantly decline over a period of nearly 70 years, pointing out that such persistence may raise questions about efficient market assumptions. The temporal behavior of January returns is thus a subject of disagreement and merits further study. We start by re-examining the hypothesis that the magnitude of the anomaly is declining or disappearing over time. Given that learning is irreversible – once learned, information cannot be “unlearned” by rational investors – we should see a steady decline in the magnitude of January return premiums over time if, in fact, the effect is being arbitraged away by informed investors.3 While we do find an overall decline in the magnitude of the January effect subsequent to the 1963–1979 period originally examined by Keim (1983), we find that the magnitude of the effect prior to that period is also smaller. It appears that the apparent decline in small firm January returns (premiums) documented in years since 1979 ( Gu, 2003; Mehdian & Perry, 2002; Schwert, 2003) may be attributed to using years of unusually high January returns that occurred during Keim's (1983) sample period as a benchmark. We do not find evidence to support an inference that the market is arbitraging away the January effect over time; rather, we conclude that the effect persists and has merely returned to a magnitude quite similar to what it was before a period of high volatility during the 1960s and 1970s. The emergence of the NASDAQ market in the 1970s provides the opportunity to examine whether an anomaly documented in mature markets over an extended period of time will appear in a new market characterized by different trading mechanisms (specialist vs. automated). We find that the January effect is not only present in NASDAQ firms, but also that the magnitude of the effect is larger than in NYSE firms and about the same as in AMEX firms. A closer examination reveals that once we control for differences in firm size across the three trading exchanges, there is no conclusive evidence that exchange membership is important. We also look for evidence that investors attempt to arbitrage the January effect by examining trading volume. Given that academic papers as well as the financial press (Booth & Keim, 2000; Hulbert, 1995 and Hulbert, 1998) discuss trading rules and show some evidence of ability to make arbitrage profits, we perform three tests related to trading volume to investigate whether there is any evidence consistent with investors attempting to implement any such trading strategy. First, we document a positive correlation between January trading volume and the magnitude of stock returns, consistent with results in numerous empirical studies.4 Second, investors wanting to capture the January returns need to establish a long position in December5 and then reverse the position in January.6 Thus, trading volume for small firms in both December and January should be higher than in other months. Third, capturing the January return requires investors to buy and sell the same number of shares in target firms in December and January. Such trading ought to result in a higher correlation of December/January trading volume for small firms than other consecutive pairs of months. Our research design contributes to the literature addressing the January effect in two ways. First, we employ individual firm data categorized by firm size from all three major US trading exchanges. This allows us to focus on the smallest firms where the January effect is dominant, in contrast to studies employing broad market indices (Gu, 2003; Mehdian & Perry, 2002) which do not isolate the differential impact of firm size on the magnitude of January returns. Second, we employ both market adjusted excess returns and raw returns in our analysis. This permits an improved comparison of returns across time and offers reassurance that the returns specification is not driving results. The combination of methodological improvements and improved research design results in a better understanding of the small firm/January effect documented by Keim (1983). We find that • January returns have reverted approximately to pre-existing levels following a brief period of volatility. • The small firm/January effect is not just a legacy of established markets. The anomaly is also found in the NASDAQ market, a new market with different trading mechanisms which emerged in the 1970s. There is no conclusive evidence that trading exchange membership influences the small firm/January effect. • We find no evidence of increased trading volume in January compared to other months of the year. Furthermore, the trading volume and return correlation is no higher in January for small firms than in other months. Finally, the correlation of trading volume for small firms in December and January is no higher than for other consecutive pairs of months. Collectively, we cannot find evidence that investors are attempting to arbitrage the January effect. The paper proceeds as follows. In Section 1 we develop our hypotheses and provide a preliminary discussion of outcomes. In Section 2 we describe the sample, outline our methodology and document results. Summary and conclusions appear in Section 4.
نتیجه گیری انگلیسی
Our findings add to a more complete description of the nature of this intriguing market phenomenon and have implications for research into its temporal behavior. We show that the January effect persists over a long period of time (1946–2007) and find no evidence that January premiums are declining as would be predicted in an efficient market. We find evidence of a period of unusually high January returns during the 1960s and 1970s, years which formed the sample examined by Keim (1983) in his seminal study and which are frequently used as a benchmark in recent studies of the temporal behavior of the anomaly. We find that the magnitude of the effect in recent years is actually quite similar to what it was before the spike. Our evidence does not sustain an argument that investors are learning of the effect and arbitraging it away. We examine the small firm/January effect in NASDAQ firms and compare the effect across all three major US trading exchanges. We find that the small firm/January effect is present in NASDAQ firms, and that differences in the magnitude of January returns between the three exchanges behave generally as if differences in exchange are suitably represented by firm size. We also investigate the association between the high January returns and trading volume for small firms. Oddly, we do not find that the large price changes of small firms in January are linked to increased trading volume during the month. This may imply a high level of consensus among investors regarding these firms’ values, but further exploration of this idea is needed. Our findings that the small firm/January effect has not been arbitraged away are not incompatible with evidence that trading strategies for some investors may successfully exploit this capital markets phenomenon (Booth & Keim, 2000; Hulbert, 1995, Hulbert, 1998 and Powell, 2004), and our research thus contributes to the ongoing debates about market inefficiency. The persistence of the January effect over a long period of time begs the question of why these returns have not been arbitraged away by the market. While this is a question for future research, we offer several plausible explanations. First, high transaction costs for small firms may inhibit investors from trading (Bhardwaj & Brooks, 1992; Booth & Keim, 2000; Stoll & Whaley, 1983). Second, infrequent trading in and the supply of small firm shares make timely portfolio construction more difficult. Third, construction of an equally weighted portfolio limits the dollar value of the investment portfolio to a multiple of the market value of the smallest firm. So, while high returns may be available, it may not be possible to establish an arbitrage portfolio of sufficient dollar value to have an important wealth effect. Our study highlights the importance of previously established evidence regarding the link between firm size and the January effect and offers new information about the nature of the anomaly. We also raise new questions, particularly given our evidence that trading volume does not correspond with high January returns for small firms. Haug and Hirschey (2006) suggest that behavioral finance may offer additional insights and there is some evidence to support this view (Anderson, Gerlach, & DiTraglia, 2007; Tseng, 2006). In short, the small firm/January effect presents a challenge to our understanding of market efficiency and it continues to be a puzzle worthy of further study by capital markets researchers.