January Effect Law and Legal Definition
The January effect is a theory in the financial market stating that the movement of the Standard & Poor's 500 Index (S&P 500) during the month of January lay down the stock market direction for the year. Under this theory, the stock market will finish the year higher if the S & P closes higher at the end of January. It creates an opportunity for investors to buy stock for lower prices before January and sell them after their value increases. Stocks that lost money for investors in the preceding year are often among the stocks that perform best in January because of sharp sell-offs of the stock at the end of the year by investors eager to claim the loss on their tax returns.
