Understanding the January Effect in Equity Markets

Very Easy Active Equity Investing Market Anomalies

In equity portfolio management, market anomalies refer to situations where stock prices do not conform to the efficient market hypothesis. One of the well-known anomalies is the 'January Effect', where stock prices, particularly those of small-cap stocks, tend to rise more in January than in other months. Understanding this anomaly can assist investors in making informed decisions.

Given this background, which of the following statements accurately describes the 'January Effect'?

The January Effect primarily affects large-cap stocks, which show lower returns in January.

The January Effect suggests that stock returns, especially for small-cap stocks, perform well in January compared to other months.

The January Effect is most noticeable in technology stocks throughout the calendar year.

Hint

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