A Santa Claus rally (sometimes referred to as the Santa Claus effect or the December effect) is a sharp rise in stock prices that sometimes occurs around Christmas.

Various theories have been proposed to explain the Santa Claus rally, including the following:

• Employees are investing their Christmas bonuses.
• People are making investments before the end of the year for tax purposes.
• Corporations are adjusting their holdings for a better appearance at the end of the year.
• Wall Street is in a festive mood.
• Pessimists are on holiday, leaving optimists to do the investing.

However, according to Investopedia.com, the most likely reason for the Santa Claus rally is an increase in share purchases made to escape paying the higher stock prices expected in the new year. A surge in stock prices early in the year is known as the January effect.

 

Continue reading about the Santa Claus rally:

 > Yes, Virginia, there really is a Santa Claus… rally.

 > Investopedia.com defines Santa Claus rally and other seasonal financial terms such as Elves, Christmas Tree and the Boston snow indicator.

23 Dec 2011