Skip to main content
SpringerLink
Log in

Market index returns, macroeconomic variables, and tax-loss selling

  • Published:
Journal of Economics and Finance Aims and scope Submit manuscript

Abstract

This study provides the most direct macro-level test to date of the tax-loss selling hypothesis as an explanation of the January effect. By examining relationships between macroeconomic variables that should be related to tax-loss selling and market index measures of the January effect, this study provides an approach that addresses the market microstructure problems that are inherent in much of the prior research regarding tax-loss selling. This study also addresses some of the methodological and variable specification concerns in prior macro-level testing, resulting in stronger support for taxloss selling.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Badrinath, S. G., and W. G. Lewellen. 1991. “Evidence on Tax-Motivated Securities Trading Behavior”.Journal of Finance 46: 369–382.

    Article  Google Scholar 

  • Bhabra, H., U. Dhillon, and R. Ramirez. 1999. “A November Effect? Revisiting The Tax-Loss-Selling Hypothesis”.Financial Management 28 (4): 5–15.

    Article  Google Scholar 

  • Belsely, D., E. Kuh, and R. Welsch. 1980.Regression Diagnostics. New York: John Wiley & Sons, Inc.

    Google Scholar 

  • Bhardwaj, R. K., and L. D. Brooks. 1992. “The January Anomaly: Effects of Low Share Price, Transaction Costs, and Bid-Ask Bias”.Journal of Finance 47: 553–575.

    Article  Google Scholar 

  • Banz R. W. 1981. “The Relationship Between Return and Market Value of Common Stocks”.Journal of Financial Economics 9: 3–18.

    Article  Google Scholar 

  • Brown, P., D. Keim, and T. Marsh. 1983. “Stock Return Seasonalities and Tax-Loss Selling Hypothesis: Analysis of the Arguments and Australian Evidence“.Journal of Financial Economics 12: 105–127.

    Article  Google Scholar 

  • Chan, K. C. 1988. “On the Contrarian Investment Strategy”.Journal of Business 61: 147–163.

    Article  Google Scholar 

  • Chopra, N., J. Lakonishok, and J. R. Ritter. 1992. “Measuring Abnormal Performance: Do Stocks Overreact?”Journal of Financial Economics 31: 235–268.

    Article  Google Scholar 

  • Cox, D. R., and K. Johnston. 1998. “The January Effect is Not Driven by Tax Loss Selling”.Journal of Investing 4: 105–111.

    Article  Google Scholar 

  • Dyl, E. A., and E. D. Maberly. 1992. “Odd-Lot Transactions Around the Turn of the Year and the January Effect”.Journal of Financial and Quantitative Analysis 27: 591–604.

    Article  Google Scholar 

  • Eakins, S., and S. Sewell. 1993. “Tax-Loss Selling, Institutional Investors, and the January Effect: A Note”.Journal of Financial Research 16: 377–384.

    Google Scholar 

  • Fant, L. F., and D. R. Peterson. 1995. “The Effect of Size, Book-to-Market Equity, Prior Returns, and Beta on Stock Returns: January versus the Remainder of the Year”.Journal of Financial Research 18: 129–142.

    Google Scholar 

  • Gibson S., A. Safieddine, and S. Titman. 2000. “Tax-Motivated Trading and Price Pressure: An Analysis of Mutual Fund Holdings”.Journal of Financial and Quantitative Analysis 35: 369–386.

    Article  Google Scholar 

  • Johnston, K., and D. R. Cox. 1996. “The Influence of Tax-Loss Selling by Individual Investors in Explaining the January Effect”.Quarterly Journal of Business and Economics 35: 14–20.

    Google Scholar 

  • Keim, D. B. 1983. “Size-Related Anomalies and Stock Return Seasonality: Further Empirical Evidence”.Journal of Financial Economics 12: 13–32.

    Article  Google Scholar 

  • Keim, D. B. 1989. “Trading Patterns, Bid Ask Spreads and Estimated Security Returns: The Case of Common Stocks at Calendar Turning Points.”Journal of Financial Economics 18: 75–97.

    Article  Google Scholar 

  • Kennedy, P. 1998.A Guide to Econometrics. 4th Edition, Cambridge, MA: MIT Press: 190.

    Google Scholar 

  • Kennickell, A., M. Starr-McCluer, and A. Sunden. 1997. “Family Finances in the U.S.: Recent Evidence From the Survey of Consumer Finances”.Federal Researve Bulletin 83, 1–24.

    Google Scholar 

  • Ligon, J. 1997. “A Simultaneous Test of Competing Theories Regarding The January Effect”.The Journal of Financial Research 20: 13–32.

    Google Scholar 

  • Poterba, J., and S. Weisbenner. 2001. “Capital Gains Tax Rules, Tax-loss Trading, and Turn-of-the-year Returns”.The Journal of Finance 56: 353–368.

    Article  Google Scholar 

  • Reinganum, M. 1983. “The Anomalous Stock Market Behavior of Small Firms in January: Empirical Tests for Tax Loss Selling”.Journal of Financial Economics 12: 89–104.

    Article  Google Scholar 

  • Ritter, J. R. 1988. “The Buying and Selling Behavior of Individual Investors at the Turn of the Year”.Journal of Finance 43: 701–717.

    Article  Google Scholar 

  • Sias, R., and L. Starks. 1997. “Institutions and Individuals at the Turn-of-the-Year”.Journal of Finance 52: 1543–1562.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Georgia Southern University, 30460, Statesboro, Georgia

    Ken Johnston

  2. Appalachian State University, 28608, Boone, North Carolina

    Don R. Cox

Authors
  1. Ken Johnston
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Don R. Cox
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ken Johnston.

Additional information

The authors wish to acknowledge the editor and anonymous referees for helpful comments and suggestions.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Johnston, K., Cox, D.R. Market index returns, macroeconomic variables, and tax-loss selling. J Econ Finan 26, 297–308 (2002). https://doi.org/10.1007/BF02759713

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF02759713

Keywords

Search

Navigation