A seasonal rally in the broader market (especially of small loser stocks) that is caused, on the one hand, by heavy buying among institutional investors, and on the other, by tax-loss selling by investors in December to realize capital losses on their stock holdings, using such losses to offset capital gains. When the selling pressure abates in January, the loser stocks increase in value. The January effect is, in essence, a market anomaly that relates to the size effect, i.e., stocks perform better or are unusually of more value in January. The January effect can be observed in the first two weeks in January.

This phenomenon is also called a year-end effect.