Capital market seasonality: The curious case of large foreign stocks

We examine seasonality in stock returns for non-U.S. companies listed in the U.S. (foreign stocks). If the turn-of-the-year effect arises solely from sources related to the trading environment, such as seasonality in liquidity and volume, we expect to see no difference in seasonality between foreign and U.S. stocks. However, we find a striking contrast between the two: large foreign stocks have an average December return that is 1.5% greater than that of large U.S. stocks. This pattern is robust to controls for various measures of abnormal returns. This finding suggests that country-specific sources influence the turn-of-the-year effect.