New evidence of quarterly return patterns in the Spanish stock market

Abstract

This article updates the evidence found by Ortiz et al. (2010) in the Spanish stock market. Our results provide a lack of significant return anomalies around the first three quarter ends of the year, which questions the role of window dressing in these return patterns. Nevertheless, the results confirm a significant turn-of-the-year effect for small-cap stocks with poor return records, which may be consistent with the tax-loss selling hypothesis despite the wash sales regulation. Using a new approach, we find that this January effect is a widespread sector anomaly. Finally, the turn-of-the-year anomaly definitively exceeds the first trading days for the small-cap stocks.

Keywords:

• January effect
• abnormal returns
• quarter-end anomalies
• tax-loss selling

JEL Classification:

• G10
• G14

Notes

¹ 26 USC Section 1091 codifies the US wash sales rules, which identifies this practice as a taxpayer buying substantially identical stocks within 30 days before or after the sale of the stocks at a loss.

² The rationale of the Spanish Law 40/1998 and its consequent Regulation in the RD 3/2004 is quite similar to the US wash rules, but the time limit is extended to two months before or after the trade that caused the capital loss.

³ According to the Spanish Law 35/2003, Spanish mutual funds must report, among other components, the detailed portfolio held at the end of every quarter end.

⁴ The lowest number of trading days found in a quarter is 58.

⁵ The Spanish benchmark Ibex-35 decreased by approximately 40% during the period 2007–2013.

⁶ We find a lack of significant return differences by economic sectors around the previous quarter ends. Table 1 does not detail these results for the sake of brevity, but they are available upon request.

Additional information

Funding

The authors would like to thank the financial support provided by the research projects 268-207, 268-210 and 268-219/1 of the University of Zaragoza. The authors also thank project ECO2013-45568-R of the Spanish Government.