1. Behavioral Finance
Economics 437

2. Calendar Effects January Effects Other (Lakonishok & Smidt 1988)
Blue Monday (-0.14% on average)
Turn of the month price increase (exceeds total monthly price increase)
From Xmas to end of year: over 1.5% average
Rate of return before holiday: 20 times the normal rate of return
Maybe these aren’t true (intro, conclusion)

3. January Effects Two types:
January is “best” month
January positively related to rest of year (good January means good year)
Generally conceded that January is best month (Haugen & Jorion, 1996)
Why?
Tax Selling: but, effect found where there is no benefit from tax selling

4. Equity Premium Puzzle
Equity returns are too high (over 10 percent on average over 110 years of data)
Why don’t more people own stocks?
Stocks just aren’t risky enough for people to avoid them as they do
Measures of individual risk aversion suggest much higher stock ownership than actually occurs
Goetzmann & Jorion, 1999: maybe it’s ”survivor bias” in the data

5. Goetzmann & Jorion Look at 39 stock markets going back to 1920s
For 1921 to 196, US equities had highest real return of all countries at 4.3 % (versus a median return of 0.8 % for other countries
But, a global portfolio (with capitalization weights) would have earned 4.0% (because of the very large US weight)

6. The End