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Window dressing

Portfolio managers buying recent winners and selling losers near reporting dates so that holdings look better in the statement.

The trade has nothing to do with the manager's view. It is presentational, driven by the fact that clients see a list of holdings at quarter end and rarely see when each was bought.

The resulting flows can push strong stocks a little higher and weak stocks a little lower into quarter end, with some tendency to reverse afterwards. It is one contributing explanation for the turn-of-the-month-effect.

The effect is small, hard to isolate from ordinary momentum, and less significant than it was before holdings disclosure became more frequent. Know it as a reason why late-quarter flows can look irrational, not as something to trade directly.

Related: turn-of-the-month-effect, seasonality, triple-witching, sector-rotation, distribution

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