January Effect Describe the January effect.

Here is a tip:
The stock prices are influenced by the market related factors.

Explanation
Portfolio managers prefer parking their investments in the small stocks that are risky at the beginning of the year and then move on to larger companies that are more stable at the end of the year to lock in their profits because the evaluation is done over the calendar year. This results in an upward pressure on the small stocks in the month of January every year, resulting in the January effect. Studies show that there are a number of annual stocks that make profit in January. When the investors found out about the January effect, they tried taking more positions in stocks in the initial month. As a result, there is an upward pressure on stocks in mid-December, which causes the January effect to start in December.

Verified Answer
Portfolio managers try to invest in small stocks that are riskier at the start of the year because they are evaluated over the calendar year, which results in an upward pressure on the small stocks in the month of January every year, leading to the January effect.