Calendar Cycles, Infrequent Decisions and the Cross Section of Stock Returns

Stylized facts suggest that most investors pay more attention to their asset holdings at the end of the tax year. The tax year ends in December in Japan and April in U.K. August is a relatively quiet period. Therefore we should expect more support for the consumption based capital asset pricing model during the period surrounding the end of the tax year, i.e., fourth and first quarters in Japan; first and second quarters in U.K. We should find least support in the third quarter in both countries. Our findings are consistent with those expectations as well as the patterns in the U.S. documented in the literature. The need to take into account deterministic seasonal patterns in investor behavior provides another rationale for the use of long horizon returns when measuring the consumption risk exposure of stocks.