The January Effect is a hypothesis which states that stocks will see their biggest monthly gains in January.
The January Effect states that the stock market usually increases during the first few days in January, or that the largest monthly gains of the year will be realized in January, therefore January will set the pace. There are many explanations for this effect, such as tax-loss selling in December, fresh starts after the New Year, and many others.
There is not enough significant statistical data to support the validity of this effect. Perhaps the year the effect was discovered the statistics lined up, but since then the theory has ceased to hold true.
If the January Effect were true, it would be evidence that markets are not efficient.
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