As well as cosmetics used by women to beautify their faces, window dressing is also famous in investment. Window dressing often used by investment managers and public companies. In order to enhance the appearance of their portfolio or the performance of their financial statements.
The purpose of this action is to convince investors to invest. You can do this by following applicable accounting principles or financial accounting standards.
Simply put, an investment manager will try to make his portfolio positive by selling stocks that are underperforming and buying stocks that are performing well.
Usually they will choose stocks from companies with large market capitalization values.
When is the window dressing phenomenon common?
The investment manager of the company will try to increase the values of the shares they own, so that the closing of the year managed performance looks better.
Almost all investment managers around the world carry out this action, so at the end of the year the stock price index will generally move up.
The window dressing phenomenon usually occurs at the end of the quarter when companies release quarterly financial reports. Namely in March, June, September and December.
However, we can feel the impact of window dressing in the following months, namely April, July, October and January. The most significant occurs at the end of the year, where usually stock prices will strengthen until January, which is also known as the January Effect.