The CAPM and the Calendar: Empirical Anomalies and the Risk-Return Relationship

Tinic and West (1984) argue that a tradeoff between risk and return exists only in January. This study demonstrates that it is not just the January Effect on stock returns which is related to the measured risk-return relationship and how that measure is apparently affected by the calendar. Other returns anomalies can also be paired with a conclusion about the relationship between risk and return. For example, risk appears to be rewarded at the turn of the month but not during the rest of the year and late in the week but not early in the week. This paper argues that, given the returns anomalies, the corresponding calendar effects on the risk-return relationship are consistent with the CAPM. Thus, the anomaly to be explained is not the relationship between risk and return focused on by Tinic and West (1984) but rather the calendar related variations in the returns themselves.