International Research Journal of Finance and Economics Issue 185 January, 2026

The Temporal Anomaly in the Digital Age: Behavioral Alpha, Algorithmic Liquidity, and the January Effect 2.0	7-28
Abstract: The "January Effect"—the empirically observed tendency for small-capitalization assets to generate abnormal positive returns at the beginning of the calendar year—remains one of the most resilient anomalies in financial economics. Originally identified by Sidney Wachtel in 1942, the phenomenon was historically attributed to fiscal mechanisms such as tax-loss harvesting and institutional portfolio rebalancing. However, the transition from floor-based trading to a 24/7, high-frequency digital ecosystem raises critical questions about the anomaly's durability. This paper argues that the January Effect has not only survived the transition to the digital age but has been amplified by three modern convergence factors: (1) The gamification of user interfaces (UI/UX) reducing cognitive friction, (2) The rise of decentralized assets (crypto/tokens) mimicking small-cap volatility, and (3) Algorithmic momentum ignition that front-runs human behavioral biases. We posit that as long as human psychology remains tethered to temporal landmarks, digital markets will continue to price in the "Fresh Start" heuristic. Keywords: January Effect, Behavioral Finance, Algorithmic Trading, Market Anomalies, Cryptocurrency, High-Frequency Trading, Fresh Start Effect, Tax-Loss Harvesting, DeFi, Temporal Landmarks JEL Classification: G14, G41, G23, D91, O33