The Capricorn Effect

Are we experiencing the much talked about Capricorn effect with the market surging in the first few trading days of January?

What is the Capricorn effect?

Basically, the Capricorn or January effect refers to the tendency for stock prices to rise in the month of January. This is mainly due to the result of investors opting to sell their stocks before the year-end in order to claim capital loss for tax purposes. This happens in countries such as the United States where individuals are taxed for capital gains. Once the tax year passes, they will reinvest their money in the stock market again causing price to go up. Other than this, the Capricorn effect is also attributed to individuals investing their year-end bonuses in stocks in January.