Which one of the following correctly identifies the phenomenon that states that one month has the greatest tendency for small stocks to earn large returns?
A)January effect
B)March effect
C)September effect
D)October effect
E)December effect

Question

Quizplus · Accepted Answer

The January effect is a well-known phenomenon in finance where small-cap stocks tend to outperform large-cap stocks in the month of January. This is thought to be due to tax-loss harvesting by investors at the end of the year, which disproportionately affects small-cap stocks. As a result, these stocks may become temporarily undervalued, creating an opportunity for investors to earn large returns in January.

Which One of the Following Correctly Identifies the Phenomenon That