The Anomalous Stock Market Behavior of Big and Low Book-to-Market Equity Firms in April: New Evidence from Japan

ABSTRACT

This paper shows that in Japan, big and low book-to-market equity firms experience higher risk-adjusted returns in April. We also reveal that volatility in April is significantly lower than in other months. Furthermore, we demonstrate that several trading strategies using this April effect can produce profitable returns, even after considering transaction costs. Moreover, additional analysis using the trading volume of financial institutions implies that the abnormally higher returns of big firms and low book-to-market equity firms appear to be derived not from the tax-loss selling effect but mainly from the dressing-up behavior of Japanese financial institutions at the end of the fiscal year.