Session 10_ Post-class test

2 there is also evidence that a significant portion

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Unformatted text preview: s shift? Solution 1. There is evidence that January is the best month of the year to invest in stocks. One story that has been told to explain this is that tax loss selling at the end of the prior year pushes down the stock prices of the companies where there is such selling and that it is the rebound that creates the January effect. If this were true, which of the following groups of stocks should be the biggest beneficiaries of the January effect? a. Stocks that went down the most in the prior year b. Stocks that went up the most in the prior year Explanation: If the January effect is due to tax loss selling at the end of the prior year, it is those stocks that went down the most over the year which will be most susceptible to this tax loss selling and hence most likely to benefit from a January bounce back. 2. There is also evidence that a significant portion of the small cap premium (the excess returns earned by small companies over the market) is generated in the first few days in January. Which of the following stories provides an explanation for the phenomenon? a. Small cap stocks are riskier than large cap companies b. Small cap companies are less liquid than large market cap companies c. Small cap companies are less likely to be held...
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This note was uploaded on 10/10/2013 for the course ECON 304 taught by Professor Aswathdamodaran during the Spring '12 term at NYU.

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