How the 52-Week High and Low Affect Option-Implied Volatilities and Stock Return Moments* | Zendy

Joost Driessen | Zendy; TseChun Lin | Zendy; Otto Van Hemert | Zendy

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How the 52-Week High and Low Affect Option-Implied Volatilities and Stock Return Moments*

Author(s) -

Joost Driessen,

TseChun Lin,

Otto Van Hemert

Publication year - 2011

Publication title -

european finance review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1573-692X

pISSN - 1382-6662

DOI - 10.1093/rof/rfr026

Subject(s) - anchoring , stock (firearms) , economics , stock price , volatility (finance) , implied volatility , financial economics , econometrics , monetary economics , psychology , geography , geology , social psychology , paleontology , archaeology , series (stratigraphy)

We provide a new perspective on option and stock price behavior around 52-week highs and lows. We analyze whether option-implied volatilities change when stock prices approach or break through their 52-week high or low. We also study the effects of highs and lows on a stock's beta and return volatility. We find that implied volatilities and stock betas decrease when approaching a high or low, and that volatilities increase after breakthroughs. The effects are economically large and significant. The approach results can be explained by the anchoring theory. The breakthrough results are consistent with anchoring and the investor attention hypothesis.postprin

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