The January Anomaly: Effects of Low Share Price, Transaction Costs, and Bid‐Ask Bias

Bhardwaj, Ravinder K.; Brooks, LeRoy D.

doi:10.1111/j.1540-6261.1992.tb04401.x

Cited by 246 publications

(114 citation statements)

References 27 publications

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“…Firm size is measured as ln( ME ) primarily to be consistent with most existing research. The simple inverse functional form for share price is chosen because it appears to fit well with the pattern in average returns across share price that Bhardwaj and Brooks (1992) attribute to differences in transaction costs.…”

Section: Datamentioning

confidence: 99%

Is the Book‐to‐market Ratio a Measure of Risk?

Peterkort

Nielsen

2005

J of Financial Research

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We develop a leverage-based alternative to traditional asset pricing models to investigate whether the book-to-market ratio acts as a proxy for risk. We argue that the book-to-market ratio should act as a proxy because of the expected relations between (1) financial risk and measures of capital structure based on the market value of equity and (2) asset risk and measures of capital structure based on the book value of equity. We find no relation between average stock returns and the book-to-market ratio in all-equity firms after controlling for firm size, and an inverse relation between average stock returns and the book-to-market ratio in firms with a negative book value of equity. 2005 The Southern Finance Association and the Southwestern Finance Association.

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Section: Datamentioning

confidence: 99%

Is the Book‐to‐market Ratio a Measure of Risk?

Peterkort

Nielsen

2005

J of Financial Research

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“…PRICE is the stock's closing price on the second to last trading day in December. The variable l/PRICE serves as a proxy for trading costs and the coefficient

β_{5}

should control for the turn‐of‐the‐year returns associated with low share‐price firms, as documented by Bhardwaj and Brooks (1992). Ritter's (1988) parking‐the‐proceeds hypothesis posits that investors rebalance their portfolio at the turn of the year, realizing losses in December and disproportionately reinvesting proceeds in small stocks in early January.…”

Section: Empirical Strategy and Data Descriptionmentioning

confidence: 99%

“…Second, we considered the role of bid‐ask spreads in affecting our results. Keim (1989) and Bhardwaj and Brooks (1992) suggest that year‐end trades are more likely to take place at the bid price, because they are “sell” orders, whereas trades in early January are more likely to occur at the “ask” price because they are “buy” orders. In this case, turn‐of‐the‐year return anomalies may simply be the result of changes in the location of transaction prices within the bid‐asked price range.…”

Section: Evidence Of Robustnessmentioning

confidence: 99%

Capital Gains Tax Rules, Tax‐loss Trading, and Turn‐of‐the‐year Returns

Poterba¹,

Weisbenner²

2001

The Journal of Finance

156

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Changes in the capital gains tax rules facing individual investors do not affect the incentives for "window dressing" by institutional investors, but they can affect the incentives for year-end tax-induced trading by individual investors. Empirical evidence for the 1963 to 1996 period suggests that when the tax law encouraged taxable investors who accrued losses early in the year to realize their losses before year-end, the correlation between early year losses and turn-of-the-year returns was weaker than when the law did not provide such an early realization incentive. These findings suggest that tax-loss trading contributes to turn-of-the-year return patterns.

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“…Cross (1973), French (1980), Rogalski (1984) and Harris (1986Harris ( , 1989, among others, report that returns estimated from transactions prices vary systematically with day-of-the-week, weekends, time-of-day and overnight versus during trading. Keim (1989), Lakonishok and Maberly(1990) and Bhardwaj and Brooks (1992) link these empirical regularities to trading-mechanism effects. For example, Keim shows that the large apparent returns at the turn of the year are due at least in part to a seasonal in the likelihood that recorded closing prices are at the bid or at the ask price.…”

Section: Role Of Trading Mechanism/market Microstructure Effectsmentioning

confidence: 99%

The Development, Accomplishments and Limitations of the Theory of Stock Market Efficiency

RayBall

1994

Managerial Finance

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The nature and extent of our knowledge of stock market efficiency are examined. The development of "efficiency", as a way of thinking about stock markets, is traced from Roberts (1959) andFama (1965) onward. The early work successfully introduced competitive economic theory to the study of stock markets and paved the way for a flood of empirical research on the relation between information and stock prices. This literature irreversibly altered our views on stock market behavior. The theory and evidence of seemingly-rational use of information lay in sharp contrast to prior beliefs. It was associated with a widespread increase in respect for stock markets, financial markets, and markets in general, at the time. Researchers began developing and using a variety of formal models of security prices. Nevertheless, "efficiency" has its limitations, both theoretically (as a way of characterizing markets) and empirically (by stretching the quality of the data, the estimation techniques used, and our knowledge of price behavior in competitive markets). Extensive evidence of anomalies suggests either that the market systematically misprices securities or that the theoretical or empirical limitations are binding, or both. The less interesting research question now is whether markets are efficient, and the more interesting question is how we can learn more about price and transactions behavior in competitive stock markets.The concept of an "efficient stock market" has stimulated both insight and controversy since Fama (1965) introduced it to the financial economics literature. As a construct, "efficiency" models the stock market in terms of the reaction of prices to * Helpful comments were provided by

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The January Anomaly: Effects of Low Share Price, Transaction Costs, and Bid‐Ask Bias

Cited by 246 publications

References 27 publications

Is the Book‐to‐market Ratio a Measure of Risk?

Is the Book‐to‐market Ratio a Measure of Risk?

Capital Gains Tax Rules, Tax‐loss Trading, and Turn‐of‐the‐year Returns

The Development, Accomplishments and Limitations of the Theory of Stock Market Efficiency

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