The January Effect
The January Effect refers to a phenomenon where small-cap stocks outperform in January. Also the broad market has also been attributed to follow this January boost.

This effect started to be promoted in articles in the 1980s. These studies showed that if you piled your money into small stocks in the second half of December and sold them in January you would beat the market by 5-10 percent.

The cause of the January Effect
The cause of this effect is often explained by the selling of losing stocks before the end of the year for tax reasons, and the subsequent purchase of those stocks in January when they’re perceived as undervalued. So, tax-loss selling can depress a stock’s price; then, in January, buying can increase the price and the stocks bounce back.

Also big funds try to “clean” and make their portfolios look better by dropping money from loosing stocks. Also fund managers would be reluctant to by more of loosing stocks since it would draw down on the track records.

Don’t bet the farm on it

1. First it is so widely known, everybody has heard about this and it is no “secret”.
2. Some say you have to beat the crowd and start buying in November and start selling in December to beat the other January Effect buyers, and at that point it starts to become a ridiculous theory.
3. Research on it continues, and has revealed mixed results. Some years you might see it; others you might not. Somebody is flipping a coin behind the scene?
4. The time series is not that long if you look back to the 1970s to 2005, that makes it only 35 January Effects to test it against.