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Call-Option Pricing and the Turn of the Year
Kevin J. Maloney and Richard J. Rogalski
The Journal of Business
Vol. 62, No. 4 (Oct., 1989), pp. 539-552
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/2353365
Page Count: 14
You can always find the topics here!Topics: Expiration, Call options, Prices, Pricing, Stock prices, Market prices, Empirical evidence, Business structures, Statistical variance, Efficient markets
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Historically, common stocks have had larger returns and variability of returns around the turn of the year and January. We find that call option prices reflect these historical patterns ex ante. That is, the higher return variability is anticipated and incorporated into the prices of call options whose trade date and expiration date fall on opposite sides of a turn-of-the-year period. These results suggest that both the turn of the year and the January phenomena are widely anticipated by financial markets before the fact.
The Journal of Business © 1989 The University of Chicago Press