January Effect

January is fast approaching which brings up the question of whether the 'January Effect' exists in recent market history. Do the small capitalization stocks outperform large capitalization stocks during January?

In the last 16 years, the Russell-2000 has been up 81% of the time during January returning an average of 2.5%. The three losing years were 2002, 2003, and 2005. The SP-500, in the last 16 years, has only been up 69% of the time in January and returned an average of 1.2%. The five losing years were 1992, 2000, 2002, 2003, and 2005. The equity curves are shown above.

Can we conclude anything from the above? The results for Russell-2000 vs. SP-500 are not statistically significant. As you can see from the bar chart above, the difference between RUT-X returns and SP-500 returns has not been consistently positive. Examining additional data may show the difference to be significant, but recent history does not seem to show a small capitalization bias.

The results could very well be much different if I had tested with a micro-cap index instead of the small-cap Russell-2000 index. I do not not enough micro-cap data to do any testing. I will have to attempt to find a micro-cap vs. large-cap study for recent years.