January Effect Definition

Dictionary of Financial Terms

At the end of the year, investors start worrying about taxes. To that end, they may sell some stocks that they've seen a loss on -- not because they don't like them anymore, but because they can take those losses out of their annual bill from Uncle Sam. This selling will knock stocks down a bit toward the end of the year -- particularly small-caps, since they're not as liquid. In January, investors will be in there buying back their lost darlings, giving stocks a boost.

That's the theory anyway. But it hasn't happened in years because, many say, once our efficient markets recognized the phenomenon it got priced in.

Definitions of Financial Terms