Probability of information-based trading and the January effect

We investigate the seasonality in the probability of information-based trading (PIN)-return relationship, the 'January PIN effect'. We find that on average stock returns decrease with PIN in January, in contrast to other calendar months. This pattern is more apparent for small stocks. We argue that this seasonality is related to the January effect. According to the analysis, the December selling pressure associated with the January effect decreases in PIN, especially for small stocks. This suggests that when the price bounces back in January, low-PIN stocks will exhibit a larger return within a small stock group, leading to the negative PIN-return pattern. Furthermore, this seasonality is not the same as other January anomalies associated with momentum and idiosyncratic risk. (C) 2010 Elsevier B.V. All rights reserved.