Last Updated on December 27, 2020 by Oddmund Groette
The January effect is a well-known anomaly. To our knowledge, it was published as a strategy for the first time in 1962, according to Victor Niederhoffer in the book The Education of a Speculator, a book any aspiring speculator should read.
Does the January effect still exist?
Unfortunately, the January effect stopped working about two decades ago. This is the equity curve in the S&P 500 compounded from 1960 until January 2020:
As we can see, the strategy stopped performing about the turn of the millennia.
Long is entered at the open in January and closed at the open in February. The code in Amibroker is like this:
Buy= Month()==1 AND Month()!=Ref(Month(),-1);
Why doesn’t the January effect work anymore?
That is of course difficult to explain. However, as we have written numerous times, good strategies eventually grind to a halt. When something gets too obvious, it usually stops working.
If you like testable strategies, please have a look at this link:
Disclosure: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.