The Anomalous Stock Market Behavior of Big and Low Book-to-Market Equity Firms in April: New Evidence from Japan

This paper shows that in Japan, big and low book-to-market equity firms experience higher risk-adjusted re- turns in April. We also reveal that volatility in April is significantly lower than in other months. Furthermore, we demon- strate that several trading strategies using this April effect can produce profitable returns, even after considering transac- tion costs. Moreover, additional analysis using the trading volume of financial institutions implies that the abnormally higher returns of big firms and low book-to-market equity firms appear to be derived not from the tax-loss selling effect but mainly from the dressing-up behavior of Japanese financial institutions at the end of the fiscal year.