The small firm effect is most likely to exhibit the largest positive returns:
A) in December as blue chip companies are sold for tax loss strategies.
B) in January.
C) in late February and early March as RRSP money enters the market.
D) in October which has traditionally been the safest month to be in the stock market. accounting changes effect

Question

Quizplus · Accepted Answer

The small firm effect, also known as the January effect, refers to the tendency for small-cap stocks to outperform the market in January. This phenomenon is often attributed to tax-loss selling in December, where investors sell losing positions to realize losses for tax purposes, leading to depressed prices for small-cap stocks. When these investors reinvest in January, they often target undervalued small-cap stocks, driving up their prices.

The Small Firm Effect Is Most Likely to Exhibit the Largest