Do Earnings Explain the January Effect?

This paper presents evidence on the correlation between stock returns in January and the earnings information released in the month. The annual earnings announced in January are predominantly positive, and the stock returns in late January are abnormally high than in the remainder of the year. Both time-series and cross-sectional analysis shows a strong relationship between stock returns and the earnings information released in January, particularly in the second half of the month. The results suggest that the earnings information may be one important driving force of the January Effect.