The Distribution of Stock Returns Implied in Their Options at the Turn-of-the-Year: A Test of Seasonal Volatility

Steven L Jones and Manoj K Singh

The Journal of Business, 1997, vol. 70, issue 2, 281-311

Abstract: The authors find that, for a sample of call options on stocks with low prior returns, the implied volatilities increase as the year-end approaches. However, there is no increase in the volatilities implied from put options on the same stocks over the same dates. This is inconsistent with a hypothesis that attributes the seasonal in stock returns to an increase in systematic risk. The results are consistent with price pressure from portfolio rebalancing at the turn-of-the-year. The implications are that the option market anticipates the return seasonal, but it survives in the stock market due to transaction costs. Copyright 1997 by University of Chicago Press.

Date: 1997
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