Momentum, Disposition, and tax-loss selling: the UK evidence

Abstract

In this paper we explore the seasonality of UK momentum returns. We find evidence of very high momentum returns during March followed by negative returns during April. This seasonality is driven by substantial swings in performance for the Loser portfolio, with loser stocks performing very poorly during March before bouncing back in April. This pattern is what we would expect to result from tax-loss selling by individual investors and as such supports the Grinblatt and Han’s (2004) explanation for momentum that is based on disposition trading. Poor January momentum returns are not so easily explained.