End Of The Year Fun And Games – Tax Loss Selling and Window Dressing
Last Monday, on the first trading day of December, I put up a post on “Santa Claus Rallies”.
Today, The Wall Street Journal has a story on the same thing on the front page of it’s Money & Investing section: “Wall Street’s Holiday Rush: Tradition of Heavy Year End Shuffling to Address Tax Losses, Dress Up Funds Creates Opportunities” (subscription required).
This is, in my opinion, the reason why December has historically been the best month for stocks (WSJ Seasonality Chart).
The article also suggests that these effects could be especially powerful given the importance of hedge funds in today’s markets. Hedge funds receive huge performance fees, usually 20% of profits, an an annual basis and so they have a huge incentive to push up their returns at the end of the year. With so much money in hedge funds now, their power to do so is increased.