Call-Option Pricing and the Turn of the Year
Document Type
Article
Keywords
law;civil law;contracts;contract law;financial contracts;derivative contracts;options contracts;call options;business;business operations;commerce;pricing;pricing volatility;prices;market prices;mathematics;empirical evidence;business structures;applied mathematics;statistics
Identifier Data
5545931299
Publisher
Elsevier
Abstract
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.
