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Can Omitted Risk Factors Explain the January Effect? A Stochastic Dominance Approach
H. Nejat Seyhun
The Journal of Financial and Quantitative Analysis
Vol. 28, No. 2 (Jun., 1993), pp. 195-212
Published by: Cambridge University Press on behalf of the University of Washington School of Business Administration
Stable URL: http://www.jstor.org/stable/2331286
Page Count: 18
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This paper provides a direct test of the hypothesis that large January returns can be attributed to omitted risk factors. Data from 1926-1991 show that the January return in the smallest decile of NYSE firms dominates the January returns for all other deciles by the first-order stochastic dominance. Similarly, January returns in all deciles (with the exception of ninth and tenth deciles) dominate non-January returns by first-, second-, or third-order stochastic dominance. The presence of stochastic dominance by January returns suggests that the omitted risk factors are not likely to explain the January effect.
The Journal of Financial and Quantitative Analysis © 1993 University of Washington School of Business Administration