A November effect?: Revisiting the tax-loss-selling hypothesis

We document the existence of another seasonality in. stock returns: a November effect. The uniqueness of this study is that the November effect is observed only after the passage of the Tax Reform Act of 1986. We document a unique and significant relationship between excess returns and the potential for tax-loss selling and conclude that the November effect is explained by the tax-loss-selling hypothesis. We also show that the January effect in the post-Act period is stronger than in the pre-Act period. This result is likely due to the Act's elimination of the preferential treatment for capital gains. The evidence presented in this paper suggests that tax-loss selling is a dominant explanation for the seasonality of stock returns.