What Is The January Effect?

What Is The January Effect?

The January Effect is a calendar-related anomaly in the financial market where financial security prices increase in the month of January. This creates an opportunity for investors to buy stock for lower prices before January and sell them after their value increases.

Therefore, the main characteristics of the January Effect are an increase in buying securities before the end of the year for a lower price, and selling them in January to generate profit from the price differences. The most common theory explaining this phenomenon is that individual investors, who are income tax-sensitive and who disproportionately hold small stocks, sell stocks for tax reasons at year end (such as to claim a capital loss) and reinvest after the first of the year.

This applies to the forex market in that the correlative effects of higher stock prices usually mean a decline in the US dollar and more risk appetite in the marketplace. This condition may be temporary, and does not always come to fruition.


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