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Errors in Recorded Security Prices and the Turn-ofthe-Year Effect

Published online by Cambridge University Press:  06 April 2009

James B. Thomson
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Abstract

Errors in recorded security prices are a source of misspecification in the market model. If recorded price errors are sufficiently nonrandom, they result in biased returns and in biased and inconsistent estimates of market model regression coefficients. This paper argues that tax-induced flow-supply pressures cause end-of-the-year recorded price errors to be nonrandom enough to create the appearance of anomalous turn-of-the-year stock return behavior. Empirical tests of returns and market model regression coefficients during the turn-of-the-year period cannot reject this errors-in-variables explanation of the turn-ofthe-year effect.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 4 , December 1989, pp. 513 - 526
Copyright
Copyright © School of Business Administration, University of Washington 1989

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