The cross-section of January effect

Cheema, Arbab Khalid; Ding, Wenjie; Wang, Qingwei

doi:10.1057/s41260-023-00324-1

Cited by 1 publication

(2 citation statements)

References 77 publications

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“…As such, in addition to the existing literature on momentum, contrarian strategies, and the January effect [44,59,85], relevant research has indicated that stock market overreaction could explain contrarian profits [86], as well as the relationship between sentiment and technical indicator performance [87]. However, we found that there is a gap in the literature regarding the impact of trading signals triggered by contrarian regulations of SOIs and the RSI in a particular month on subsequent performance ("monthly effects"), which differs significantly from the better monthly performance in a particular month (e.g., the January effect that has been extensively investigated in the relevant literature [2,3,69,71,74]. As a result, we argue that this research addresses the gap and aims to contribute to the existing literature by examining whether investors who employed trading signals emitted contrarian SOI and RSI trading rules in a particular month instead of other months would have better subsequent investment performance, given that the concept of investment is to invest now and derive investment performance in the future.…”

Section: January Effectsmentioning

confidence: 78%

“…Moreover, other factors that may influence January price movement include market sentiment shifts [74], macroeconomic indicators [75], geopolitical events [76], or unexpected news [74], all of which contribute to volatile trading patterns. We contend that macroeconomic indicators, global events, and changes in market regulations can influence tock prices by altering investor perceptions of economic health, corporate performance, and regulatory settings [77][78][79].…”

Section: January Effectsmentioning

confidence: 99%

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Mastery of “Monthly Effects”: Big Data Insights into Contrarian Strategies for DJI 30 and NDX 100 Stocks over a Two-Decade Period

Chiu,

Huang,

Day

et al. 2024

Mathematics

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In contrast to finding better monthly performance shown in a specific month, such as the January effect (i.e., better stock price performance in January as opposed to other months), which has been extensively studied, the goal of this study is to determine whether investors would obtain better subsequent performance as technical trading signals emitted in a specific month because, from the investment perspective, investors purchasing stocks now would not know their performance until later. We contend that our analysis emphasizes its critical role in steering investment decisions and enhancing profitability; nonetheless, this issue appears to be overlooked in the relevant literature. As such, utilizing big data to analyze the constituent stocks of the DJI 30 and NDX 100 indices from 2003 to 2022 (i.e., two-decade data), this study investigates whether trading these stocks as trading signals emitted via contrarian regulation of stochastic oscillator indicators (SOIs) and the relative strength index (RSI) in specific months would result in superior subsequent performance (hereafter referred to as “monthly effects”). This study discovers that the oversold signals generated by these two contrarian regulations in March were associated with higher subsequent performance for holding 100 to 250 trading days (roughly one year) than other months. These findings highlight the importance of the trading time and the superiority of the RSI over SOIs in generating profits. This study sheds light on the significance of oversold trading signals and suggests that the “monthly effect” is crucial for achieving higher returns.

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