THE JANUARY EFFECT AND INTERGENERATIONAL TRANSFERS

The Intergenerational Transfer Hypothesis asserts that the january Eff ect is caused by the transfer of wealth from older to younger investor s at the Christmas gift-giving season. Preferences of the modal invest or change; safety is less substitutable for expected returns. Assets p referred by older investors are sold. Assets that younger investors pr efer are purchased. Sales of safe, highly capitalized stocks does not depress their prices, because of their high liquidity. Purchases of ri sky low priced small growth companies increase their prices, because m arkets these stocks are more likely to be thin, and because few hedgin g opportunities exist. This produces the january Effect.