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Gambling in the New Year? The January Idiosyncratic Volatility Puzzle

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Author Info
Doran, James
Jiang, Danling
Peterson, David

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Abstract

In January high idiosyncratic volatility stocks on average outperform low volatility stocks regardless of firm size, book-to-market equity, past returns, and institutional trading, while in other months they underperform. This positive January relation is concentrated among low-price stocks that also exhibit negative mean, but highly skewed, returns for the remaining months of the year. We suggest these findings are driven by investor preference for stocks with lottery features at the start of the New Year. Similarly, gambling activities in Las Vegas exhibit January seasonality. Also, Chinese stock markets as a whole and highly volatile Chinese stocks in particular outperform at the turn of the Chinese New Year, but not in January.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8165.

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Date of creation: 08 Apr 2008
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Handle: RePEc:pra:mprapa:8165

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Related research
Keywords: Idiosyncratic Volatility January Effect Mental Accounting Preference for Skewness Gambling

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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