Market Anomalies and Active Equity Management

As an investment analyst at a leading equity research firm, you have been tasked with evaluating the potential impact of various market anomalies on equity portfolio management strategies. Specifically, you are to analyze the implications of the following two market anomalies: the January Effect and the Momentum Effect.

In your essay, provide a detailed explanation of each anomaly, including its theoretical background and empirical evidence supporting its existence. Discuss how these anomalies can be incorporated into an active equity management strategy, considering both the potential benefits and pitfalls. Additionally, evaluate the persistence of these anomalies in today's market context and suggest any adjustments a portfolio manager might need to make in response to changing market dynamics.

Your response should be structured, coherent, and well-supported by relevant academic and practical frameworks. Considerations such as risk management, transaction costs, and the impact of behavioral finance on the effectiveness of exploiting these anomalies should be addressed.