Comments on: What Does a Negative January Mean for the Rest of the Year? http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Fri, 20 Nov 2009 19:56:44 -0800 http://wordpress.org/?v=abc hourly 1 By: What Do You Think of Sam Stovall’s 7 Rules of Investing? | AllFinancialMatters http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-404252 What Do You Think of Sam Stovall’s 7 Rules of Investing? | AllFinancialMatters Mon, 23 Feb 2009 18:48:39 +0000 http://allfinancialmatters.com/?p=2275#comment-404252 [...] 2. As goes January, so goes the year. Is this really true? [...] [...] 2. As goes January, so goes the year. Is this really true? [...]

]]> By: Academic http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-240869 Academic Mon, 25 Feb 2008 04:44:39 +0000 http://allfinancialmatters.com/?p=2275#comment-240869 There are two papers that you should read to get a handle on this. Firstly, Cooper, M.J., McConnell, J.J., Ovtchinnikov, A.V., 2006. The other January effect. Journal of Financial Economics 82, 315-341. discusses the existence of the January effect in the US (ie the predictive power of January) arguing that it does indeed exist. Then there is a second paper Easton, S. and Pinder, S. 2007. "A Refutation of the Existence of the Other January Effect", International Review of Finance, 3-4 (7): pp. 89-104. which very clearly demonstrates that this effect is not really there either in the US or OS. indeed, the paper shows that five of the remaining 11 months are better predictors than January using raw returns. There are two papers that you should read to get a handle on this.

Firstly, Cooper, M.J., McConnell, J.J., Ovtchinnikov, A.V., 2006. The other January effect. Journal of Financial Economics 82, 315-341. discusses the existence of the January effect in the US (ie the predictive power of January) arguing that it does indeed exist.

Then there is a second paper Easton, S. and Pinder, S. 2007. “A Refutation of the Existence of the Other January Effect”, International Review of Finance, 3-4 (7): pp. 89-104. which very clearly demonstrates that this effect is not really there either in the US or OS. indeed, the paper shows that five of the remaining 11 months are better predictors than January using raw returns.

]]> By: Professor 1x2 http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-228020 Professor 1x2 Wed, 06 Feb 2008 17:51:44 +0000 http://allfinancialmatters.com/?p=2275#comment-228020 Hi, this is a good analysis. The 'january' effect was first discussed by lakonishok and Smidt, in a paper dated of 1988. In their study 90 years of data was observed and they concluded that each year return is higly dependent on teh january return. After this ugly 2008 January I've made an similar analysis ans i found that the january return explains 30% of the anual return, of each year. Period observed 1990/2007. I also noticed that this model explains better the bull years than the bear years. So, i'm not sure id my model will say much more than your 50/50 conclusion... but from the estimated regression one shall wait for a negative year. In fact, one shall expect the market to be lower in the end of the year than it was in the end of january... ouch! Hi, this is a good analysis. The ‘january’ effect was first discussed by lakonishok and Smidt, in a paper dated of 1988.

In their study 90 years of data was observed and they concluded that each year return is higly dependent on teh january return.

After this ugly 2008 January I’ve made an similar analysis ans i found that the january return explains 30% of the anual return, of each year. Period observed 1990/2007. I also noticed that this model explains better the bull years than the bear years.

So, i’m not sure id my model will say much more than your 50/50 conclusion… but from the estimated regression one shall wait for a negative year. In fact, one shall expect the market to be lower in the end of the year than it was in the end of january… ouch!

]]> By: lorax http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-215753 lorax Tue, 22 Jan 2008 01:41:04 +0000 http://allfinancialmatters.com/?p=2275#comment-215753 Hold on to your hats, S&P futures are falling like a brick out of a New York skyscraper. Hold on to your hats, S&P futures are falling like a brick out of a New York skyscraper.

]]> By: Dividendgrowth http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-215664 Dividendgrowth Mon, 21 Jan 2008 23:12:14 +0000 http://allfinancialmatters.com/?p=2275#comment-215664 The interesting fact is that if you simply bought SPY on tuesday, you would outperform the market in 2008 by 10%! The interesting fact is that if you simply bought SPY on tuesday, you would outperform the market in 2008 by 10%!

]]> By: GrowYourFunds http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-215563 GrowYourFunds Mon, 21 Jan 2008 20:09:56 +0000 http://allfinancialmatters.com/?p=2275#comment-215563 <strong>Around the investment blogging world</strong> It has been a while since our last edition of around the investment blogging world and I thought now was a great time to see what is being said about the current market situation. Around the investment blogging world gives... Around the investment blogging world

It has been a while since our last edition of around the investment blogging world and I thought now was a great time to see what is being said about the current market situation. Around the investment blogging world gives…

]]> By: Loren Steffy http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-215398 Loren Steffy Mon, 21 Jan 2008 14:51:01 +0000 http://allfinancialmatters.com/?p=2275#comment-215398 <strong>BizLinks | 1.21.08</strong> Unimpressed by U.S. stimulus plan, world's markets dive Oil drops below $90 a barrel Questioning the Bonus System -- after the year Wall Street's had, are any bonuses justified? Chinese banks face writedowns from U.S. subprime mess What Does... BizLinks | 1.21.08

Unimpressed by U.S. stimulus plan, world’s markets dive Oil drops below $90 a barrel Questioning the Bonus System — after the year Wall Street’s had, are any bonuses justified? Chinese banks face writedowns from U.S. subprime mess What Does…

]]> By: Dan http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-215151 Dan Mon, 21 Jan 2008 07:48:51 +0000 http://allfinancialmatters.com/?p=2275#comment-215151 JLP, While it is true that a glance at the January returns tells you there is about a 50/50 chance of the market being negative as a whole this year, I suspect this would true of positive or negative returns in any particular month of the year and is therefore not a terribly useful conclusion. However, a slight reorganization of the data can provide some a bit more insight. I binned your data into 4 groups: 0 to -2, -2 to -4, -4 to -6, and -6 to -8. Each return bin had an average of about 0 for the yearly return. As you might expect, though, the variation in the yearly returns increases dramatically as the January returns approach 0. The 0 to -2 binning has a standard deviation of 23.76 in its yearly return but the -6 to -8 binning has a standard deviation of only 2.96. Obviously the sample sizes are too small to draw conclusions with any confidence, but with that caveat I would say that while you can't say much about whether the S&P will be up for 2008 as a whole you can make a credible case that it will be up from where it is right now. JLP,

While it is true that a glance at the January returns tells you there is about a 50/50 chance of the market being negative as a whole this year, I suspect this would true of positive or negative returns in any particular month of the year and is therefore not a terribly useful conclusion. However, a slight reorganization of the data can provide some a bit more insight.

I binned your data into 4 groups: 0 to -2, -2 to -4, -4 to -6, and -6 to -8. Each return bin had an average of about 0 for the yearly return. As you might expect, though, the variation in the yearly returns increases dramatically as the January returns approach 0. The 0 to -2 binning has a standard deviation of 23.76 in its yearly return but the -6 to -8 binning has a standard deviation of only 2.96.

Obviously the sample sizes are too small to draw conclusions with any confidence, but with that caveat I would say that while you can’t say much about whether the S&P will be up for 2008 as a whole you can make a credible case that it will be up from where it is right now.

]]> By: » Weekend Roundup - Palm Centro Edition @ fivecentnickel.com http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-215030 » Weekend Roundup - Palm Centro Edition @ fivecentnickel.com Mon, 21 Jan 2008 03:57:51 +0000 http://allfinancialmatters.com/?p=2275#comment-215030 [...] In case you haven’t noticed, the stock marketing has taken a beating so far in 2008. Never on to be afraid of the numbers, JLP digs into the data and shows us that, historically, there’s a 50/50 chance that the market will end up positive (or negative) for the year given the start we’ve had thus far. So you tell me… Is the glass half full or half empty? [...] [...] In case you haven’t noticed, the stock marketing has taken a beating so far in 2008. Never on to be afraid of the numbers, JLP digs into the data and shows us that, historically, there’s a 50/50 chance that the market will end up positive (or negative) for the year given the start we’ve had thus far. So you tell me… Is the glass half full or half empty? [...]

]]> By: Silicon Prairie http://allfinancialmatters.com/2008/01/20/what-does-a-negative-january-mean-for-the-rest-of-the-year/comment-page-1/#comment-214945 Silicon Prairie Mon, 21 Jan 2008 00:11:55 +0000 http://allfinancialmatters.com/?p=2275#comment-214945 Ciaran, not distributing information like this might be one of the few investor-friendly moves from mutual fund wholesalers. Not that they can hide what's happening, but trying to predict the next 11 months from the market performance in January is a weak technical indicator (it doesn't seem like there's been enough history yet to make any real statistical conclusions). Anyone who's supposed to be investing for the long-term certainly doesn't need more encouragement to think they can predict the future. There's enough news already to drive the people who sell low and buy high. Ciaran, not distributing information like this might be one of the few investor-friendly moves from mutual fund wholesalers. Not that they can hide what’s happening, but trying to predict the next 11 months from the market performance in January is a weak technical indicator (it doesn’t seem like there’s been enough history yet to make any real statistical conclusions). Anyone who’s supposed to be investing for the long-term certainly doesn’t need more encouragement to think they can predict the future. There’s enough news already to drive the people who sell low and buy high.

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