The turn-of-the-year effect and tax-loss-selling by institutional investors

• Autores: Stephanie A. Sikes
• Localización: Journal of accounting and economics, ISSN 0165-4101, Vol. 57, Nº. 1, 2014, págs. 22-42
• Idioma: inglés
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• Resumen

  • Prior studies attribute the turn-of-the-year effect whereby small capitalization stocks earn unusually high returns in early January to tax-loss-selling by individual investors and window-dressing by institutional investors. My results suggest that a significant portion of the effect on turn-of-the-year returns that prior studies attribute to window-dressing is actually attributable to tax-loss-selling by institutional investors. Among small capitalization stocks, I find that institutional investors with strong tax incentives and weak window-dressing incentives realize significantly more losses in the fourth quarter than in the first three quarters of the calendar year, and that their fourth quarter realized losses have a significant impact on turn-of-the-year returns. A one percentage point change in these institutional investors' fourth quarter realized losses scaled by a firm's market capitalization results in an increase of 47 basis points in the firm's average daily return over the first three trading days of January, which represents a 46 percent change for the mean firm.