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Call-Option Pricing and the Turn of the Year

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  • Maloney, Kevin J
  • Rogalski, Richard J

Abstract

Historically, common stocks have had larger returns and variability of returns around the turn of the year and January. The authors 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. Copyright 1989 by the University of Chicago.

Suggested Citation

  • Maloney, Kevin J & Rogalski, Richard J, 1989. "Call-Option Pricing and the Turn of the Year," The Journal of Business, University of Chicago Press, vol. 62(4), pages 539-552, October.
    • Handle: RePEc:ucp:jnlbus:v:62:y:1989:i:4:p:539-52
    DOI: 10.1086/296477
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    Citations

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    Cited by:

    1. David S. Bates, 1995. "Testing Option Pricing Models," NBER Working Papers 5129, National Bureau of Economic Research, Inc.
    2. Marshall, Andrew & Musayev, Taleh & Pinto, Helena & Tang, Leilei, 2012. "Impact of news announcements on the foreign exchange implied volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 719-737.
    3. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    4. Athanassakos, George & Tian, Yisong Sam, 1998. "Seasonality in Canadian treasury bond returns: An institutional explanation," Review of Financial Economics, Elsevier, vol. 7(1), pages 65-86.
    5. Francois-Éric Racicot, 2011. "Low-frequency components and the Weekend effect revisited: Evidence from Spectral Analysis," RePAd Working Paper Series UQO-DSA-wp052011, Département des sciences administratives, UQO.

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