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Journal Article

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
Vol. 70, No. 2 (April 1997), pp. 281-311
DOI: 10.1086/209718
Stable URL:
Page Count: 32
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We 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.