THE JANUARY EFFECT AND INTERGENERATIONAL TRANSFERS

The Intergenerational Transfer Hypothesis asserts that the january Effect is caused by the transfer of wealth from older to younger investors at the Christmas gift-giving season. Preferences of the modal investor change; safety is less substitutable for expected returns. Assets preferred by older investors are sold. Assets that younger investors prefer are purchased. Sales of safe, highly capitalized stocks does not depress their prices, because of their high liquidity. Purchases of risky low priced small growth companies increase their prices, because markets these stocks are more likely to be thin, and because few hedging opportunities exist. This produces the january Effect.