Indirect Tests of the Haugen-Lakonishok Small-Firm/January Effect Hypotheses: Window Dressing versus Performance Hedging.

Equity mutual fund data from 1976-93 is used to test hypotheses that distinguish window dressing from performance hedging. No significant difference is found pre/post 1983 in the number of funds choosing non-December fiscal year ends or in the percentage of dollars invested when comparing December/non-December fiscal year ends. Significant differences are found in both January returns for mutual funds with December/non-December fiscal year ends and in one month returns for funds with/without a fiscal year end in the previous month. Therefore, if the small-firm/January effect is portfolio manager related, performance hedging, not window dressing, is the more probable source for the "excess" returns. Copyright 1998 by MIT Press.