How the 52-week high and low affect option-implied volatilities and stock return moments
Driessen,J.J.A.G. Lin,T.C. van Hemert,O.
Driessen,J.J.A.G.
Lin,T.C.
van Hemert,O.
Abstract
We provide a new perspective on option and stock price behavior around 52-week highs and lows. We analyze whether option-implied volatilities (IVs) 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 IVs 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.
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2013
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Research Projects
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Driessen, J J A G, Lin, T C & van Hemert, O 2013, 'How the 52-week high and low affect option-implied volatilities and stock return moments', Review of Finance, vol. 17, no. 1, pp. 369-401. < http://rof.oxfordjournals.org/content/early/2011/08/23/rof.rfr026 >