Stock Return Seasonalities and the Tax-Loss Selling Hypothesis: Analysis of the Arguments and Australian Evidence

A ‘tax-loss selling’ hypothesis has frequently been advanced to explain the ‘January effect’ reported in this issue by Keim. This paper concludes that U.S. tax laws do not unambiguously predict such an effect. Since Australia has similar tax laws but a July–June tax year, the hypothesis predicts a small-firm July premium. Australian returns show pronounced December–January and July–August seasonals, and a premium for the smallest-firm decile of about four percent per month across all months. This contrasts with the U.S. data in which the small-firm premium is concentrated in January. We conclude that the relation between the U.S. tax year and the January seasonal may be more correlation than causation

Arbitrage, Nontrading, and Stale Prices: October 1987.

This article explains a puzzle created by the Standard and Poor's 500 cash and futures prices during the crash of October 1987. The cash index appears to be a moving average of the futures, but nontrading in constituent stocks explains only the initial period of delayed openings. However, execution of stale limit buy orders, given the high volume and NYSE market mechanisms at the time, resulted in extraordinary levels of stock prices that were not caused by nontrading. The model is supported in aggregate S&P data and transactions data for individual stocks. Copyright 1992 by University of Chicago Press.

One Market? Stocks, Futures, and Options during October 1987.

The authors provide new evidence regarding the degree of integration among markets for stocks, futures, and options prior to and during the October 1987 market crash. Where previous analyses have resulted in recommendations for the implementation of circuit breakers, the coordination of margin requirements across markets, and changes in regulatory jurisdiction, their analysis indicates that delinkage between markets during the crash was primarily caused by an antiquated mechanism for processing stock-market orders. The results suggest that market integration may be better served by efficient order execution than by further restricting markets. Copyright 1992 by American Finance Association.