Gambling in the New Year? The January Idiosyncratic Volatility Puzzle

摘要

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. The positive January relation is concentrated among stocks with low prices that also exhibit high expected idiosyncratic skewness, suggesting an overinvestment in stocks with lottery features at the start of the New Year. Consistent with this interpretation, gambling activities in Las Vegas exhibit similar January seasonality. Also, Chinese stock markets show a strong Chinese New Year effect, but a weak January effect. Particularly among those with low prices, highly volatile Chinese stocks outperform low volatility stocks at the start of the Chinese New Year.