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Editorial: The January Effect

Investors, economists, and stock market enthusiasts have long debated the existence of the January Effect in the capital markets. Is it real? And will it return? The historical tendency for stock prices to increase in January more than any in other month, an anomaly particularly evident in small cap stocks, has been attributed to year end tax selling, window-dressing by portfolio managers, and jubilant expectations for the New Year.

At HBS, a very different type of January Effect occurs. Rather than reflecting heightened performance expectations for the year ahead or exuberance (irrational or otherwise), the HBS January Effect more closely resembles the film classic Night of the Living Dead.

Upon returning from winter break trips to Australia, Hong Kong, Barbados and other exotic destinations, EC and RC students alike find themselves facing a colder, harsher reality.

For EC’s, the realization that re-entry into the workforce is both quickly approaching and unavoidable produces feelings of anxiety and trepidation.

With the exception of those planning to work in Spain, students’ will certainly experience a precipitous decline in allotted vacation time upon returning to the ranks of the employed. No longer will Tuesday through Saturday evenings exist solely for social events, and long-weekend trips to London will become the exception rather than the rule. Suits and skirts will replace jeans and sweatshirts.

RC’s experience similar distress in January, albeit for different reasons.

Popular myth held that term two classes would be less intense than those taken in term one. Lies, all lies. Cases (and case assignments) seem stretch to new lengths. Arriving to class on time (or at all) presents a new challenge. Hell Week looms ominously in the not-so-distant future.

Temperature further compounds the January Effect at HBS. Many an international student will argue that the Boston winter climate is not fit for human habitation. The months ahead seem only to offer an endless vista of cold, bleak gloom. These winter blues have been scientifically linked to a lack of sunlight, and severe cases have even earned a clinical name, Seasonal Affective Disorder (SAD). Just as occurrences of depression and suicide rates rise during the winter months in places like Alaska, Scandinavia, and Iceland, symptoms of lethargy, irritability, and fatigue pervade the HBS campus this month.

But before students rush to purchase St. John’s Wort or undergo light therapy treatment, it may be worthwhile to reconsider the economists’ questions: Is this phenomenon real and will it return?

Assuming the answer to the first question is yes, the latter implies that the January Effect is a merely a temporary affliction (after all, in order to return, it must go away). With February soon to be upon us, the January effect will gradually fade to a distant memory. In this unpredictable climate, an early spring heat-wave is not out of the question. Interview and job offers will arrive. Cases will improve. And section love will come out of the closet. What more could we hope to look forward to?

January 26, 2004
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