Background: The January Effect is a well-known phenomenon within the literature of behavioural finance which refers to higher stock returns in January compared to remaining calendar months of the year. The January Effect have shown to be persistent throughout time, but recent studies such as Gu (2003) and Haug and Hirschey (2006) have provided evidence for a declining trend of the effect. Patel (2016) also found that the effect is absent in the US market today.

Purpose: The primary purpose of this study is to investigate if the January Effect still exists in the Nordic countries (excluding Iceland) and whether the anomaly has gradually disappeared. This paper will also examine if the strength of the January Effect seems to be stronger or weaker with respect to market capitalization of the stocks included in an index.

Method: To be able to make inferences about the January Effect with respect to market capitalization of stocks, we created a value weighted index (representing large cap) and an equally weighted index (representing small cap). Further, non-parametric and parametric models used by Rozeff and Kinney (1976) and Gultekin and Gultekin (1983) have then been used to examine the January Effect.

Conclusion: The study provided statistically significant results of an existing January Effect during our sample period from the 1980s to 2019. The effect showed to be weaker for large- cap firms while it was especially strong for small-cap firms. Even though the January Effect have shown to be strong during the recent years, our trend analysis provided evidence that outperformance in January against the remaining months have diminished gradually throughout time.