Seasonality in canadian stock prices: a test of the "tax-loss-selling" hypothesis

A popular hypothesis to explain the anomalous January returns of common stocks is based on the argument that there is considerable tax-loss selling by investors toward the end of the year. The purpose of this study is to test the tax-loss-selling hypothesis with data on Canadian stocks. Although the introduction of capital gains tax in Canada seems to have affected the behavior of stock returns, the findings do not support the proposition that tax-induced trading is the sole cause of the seasonality in stock returns in Canada.