Taxes and Stock Return Seasonality: Evidence from the London Stock Exchange

Prior to the introduction of capital gains taxes, seasonality is not detected in the returns of firms that traded on the London Stock Exchange. However, after the imposition of a capital gains tax, the British stock return data exhibit apparent monthly effects in both January and April. Additional analysis reveals that, while the April effect is consistent with the tax-loss-selling hypothesis, the January effect cannot be attributed solely to the introduction of capital gains taxation. Furthermore, our efforts indicate that much caution should be exercised when interpreting studies that compare results from non-U.S. data sources with those from U.S. data.