Effects of Santa Claus on Financial Management

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The topic of the study is based on the Santa Claus effect which often occurs annually in December. Santa Claus has both positive and negative effects. The major positive influence of Santa Claus is the market profitability. Some negative effects associated with this character include the fact that consumers are overpriced, and managers find it hard to inject more cash to buy additional stock to the business (Fisher, 2010). The main aim of this paper is to address the impacts of the Santa Claus rally on financial management.

Effects of Santa Claus on financial management

Santa Claus effect generally means that markets have a habit of changing their atmosphere or becoming profitable in the month of December. The Santa Claus effect is also referred to as the Santa Clause rally. At this period, many companies collect a lot of money from their highly charged goods as a result of spending customers’ salaries and bonuses on the Christmas season. Moreover, almost everyone is in a happy mood as a large number of people do not go to work at this time.

The Santa Claus effect is always measured by how many people buy goods in huge stocks despite the fact that their prices are highly overpriced. A great number of people do this because they expect prices to continue rising in the month of January (Investopedia ULC, 2010). This normally occurs when managers increase the prices of the market stocks in December and at the beginning of January. Extra funds are added to the market as it continues to enlarge in this period, which is later endorsed for accounts and taxation calculations before the end of the year. Business organizations display their products attractively in order to attract more customers.

During this period, managers try to do their best to make the economy develop as they add additional cash to the market to fuel the business. The market agreement is that the managers should not give up or fear a lot about the market shortcomings or the deficit of the following year, but the vital thing is to get rid of the extending depression of the economy. The Christmas period is the best time to invest in the business, and there is always availability of loans (Rockefeller, 2002).

Most of the companies use the advantages of the Santa Clause rally by preparing various gifts, packaging them attractively, and even distributing them to their customers. Some companies engage in programs that operate the Santa Claus rally by giving them fiscal support. For example, in the US, a large number of poor families have benefited from Santa Clause-associated companies which were generously distributing various gifts.

Various companies also exercise social corporate responsibilities to customers as a Santa Claus action through lending them some loans for either buying some equipment or restocking their small selling stores. In every trading company, its main objective is to make a profit.

Most of the companies try to recover their losses during the period between Christmas and early January (Otnes, Kyungseung, and Young, 2004). When a trading company makes a loss, it reduces the business liability of taxing. In this period, managers who have the responsibility of recovering the losses that business has made substitute most of the stocks that are not performing well with those that are doing well at the market. They always do this before they submit both the yearly and the quarterly reports.

Most of the companies that are favored by the Santa Claus are those that have made tax losses and are currently submitting good profitable reports, or have good basics. Nowadays, Christmas time is viewed as the main measure of the business sensibility and of what the following year will be like. For example, in the year 2009, the stock rate increased greatly between the last week of the month of December and the first selling two days of year 2010 in America (Hulbert, 2010). This fully portrayed what the year 2010 would be, and it proved to be true.

Before determining the effect of the Santa Clause rally of a certain year, one must first determine the probable seasonality of the market which includes studying the history data to obtain the designs which have been reiterating themselves at certain dates of the calendar year. Seasonality means that it is a character of certain period that keeps recurring within a year.

Santa Claus effects are seasonal as they occur only once a year at Christmas time, between the last week of December and a few days of the following year. Seasonality helps businesses invest at the right time, get the additional staff and make business decisions where everything is expected to correspond with the season that is anticipated. It is also vital always to consider the seasonal effects when evaluating the business stocks according to a central view point.

Santa Claus effect brings about speculation in the market by overpricing the stocks, and consumers still purchase the goods as a way of investing. The Santa Claus effect always arises because of the following concepts (Russolillo, 2011):

  • Several customers tend to believe that the Santa Claus effect occurs due to yearly respects of tax.
  • Various individuals believe that this effect occurs because cynics are always on leave during this holiday season.
  • Others think that a large number of people are buying the stock due to the expectation of the January outcome. January outcome is a yearly occurrence where stockholders begin to worry about the taxes. Stockholders that may have performed very well could sell the stocks that were downcast. This allows investors to write off the losses that they could make. When many investors do this at the same time, it causes the market stock to lower at the turn of the year, but this situation is definitely corrected in January when investors’ purchases back the business stocks that they have vended (Russolillo, 2011). The effect of January always affects small limits more as compared to the large limits though this has not been happening in a number of years as nowadays, the market is familiar with these effects. Moreover, various business people are expending the tax protected departure strategies as they eliminate every aim of vending for the purpose of generating the tax losses.
  • There are some who also believe that the Santa Claus effect happens due to Christmas magic to infect everyone with happiness as a holiday miracle.
  • Others believe that this effect will make the level of the market stocks decrease as a lot of senior customers are always on leave.
  • Various people think that when business managers replace the less performing stocks with the best performing ones, they will induce an effect.

For the Santa Claus rally to develop very well, the investor is always down and must be performing badly in the market. At this moment, the market is always underinvested which gives the investors a good chance if the market goes high in December. The manager will be required to purchase the stocks faster otherwise he/she will face the worst situation when the accounting books are closed at the end of the year.

The Santa Claus effect gives a very little time for trading, and as a matter of fact, everything is not guaranteed. It encourages materialism as related to children (Otnes, Kyungseung and Young, 2004). Children pretend to behave well to their parents so that they can receive many presents during this season, and this leads to materialism. Materialism is experienced when parents purchase too many unnecessary things to their children.


Santa Claus effect occurs in December holiday between the last week of the month and a few days of the following year.

Business managers overcharge their stocks because there is routinely a high demand of various products during this festival season. Business people write off their tax losses by the huge profit they get from these sales. The traders at this season also get a chance of selling the stocks that did not perform well as well as replacing underperforming stocks with ones that are successful. During this period, investors have the best opportunity to invest, to get the best staff and even to make the best decisions concerning their company strategies.


Fisher, K. (2010). The Only Three Questions That Count: Investing by Knowing What Others Don’t. New York: John Wiley and Sons.

Hulbert, M. (2010). Here comes good old Santa Claus. MarketWatch. Web.

Investopedia ULC. (2010). Santa Claus Rally. Retrieved from Investopedia: Web.

Otnes, C., Kyungseung K., and Young C. K. (2004). Yes, Virginia, There is a Gender Difference: Analyzing Children’s Requests to Santa Claus. Journal of Popular Culture, 17-29.

Rockefeller, B. (2002). The global trader: strategies for profiting in foreign exchange, futures, and stocks. New York: John Wiley and Sons.

Russolillo, S. (2011). Santa Rally Not Losing Steam. The Wall Street Journal, 3-12.

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