January or April? Tests of the turn–of–the–year effect in the New Zealand stock market

Turn-of-the-year effect has been observed in many markets throughout the world and various explanations have been suggested for this anomaly in the markets. The ‘tax-loss selling’ hypothesis is one such explanation that has received some support. The present study examines the validity of this hypothesis in the New Zealand context. Since the financial year in New Zealand ends in March there should be an April effect if the tax-loss selling theory is to hold. The study finds that there is neither a January effect nor an April effect in New Zealand. The small size and the poor liquidity of the market may be factors influencing this observation.