1.9 percentage point difference in annual compound returns between
large and small stocks. In other words, from February through Decem-
ber, the returns on small stocks are lower than the returns on large
stocks. On the basis of history, the only advantageous time to hold small
stocks is the month of January!
To see how important the January Effect is, look at Figure 18-1. It
shows the total returns index on large and small stocks and on small
stocks if the January return on small stocks is replaced with that of the
S&P 500 Index in January. As shown in Chapter 9, a single dollar invested
in small stocks in 1926 would grow to $11,250 by the end of 2006, while
the same dollar would grow to only $2,736 in large stocks. Yet if the small
stocks’ return in January is eliminated, the total return to small stocks ac-
cumulates to only $394, merely 14 percent of the return on large stocks!CHAPTER 18 Calendar Anomalies 307
FIGURE 18–1
Small and Large Stocks, with and without the January Effect, 1926 through December 2006