IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v61y2024ics1544612324000205.html
   My bibliography  Save this article

The ambiguous December

Author

Listed:
  • Shust, Efrat

Abstract

This study documents a seasonality in capital market ambiguity. It shows that ambiguity tends to increase along the calendar year. Moreover, December records an exceptionally high level of ambiguity. In half of the sample years, December exhibits the highest or the second-highest ambiguity among all months. This pattern is not found for the volatility index (VIX). The “December Ambiguity Effect” is robust to numerous tests and persists after controlling for macroeconomic parameters. A possible explanation for this effect is the obsoleteness of information disclosed at the beginning of the year by firms with December fiscal year-end.

Suggested Citation

  • Shust, Efrat, 2024. "The ambiguous December," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000205
    DOI: 10.1016/j.frl.2024.104990
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324000205
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.104990?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Larry G. Epstein & Martin Schneider, 2010. "Ambiguity and Asset Markets," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 315-346, December.
    2. Ruan, Xinfeng & Zhang, Jin E., 2021. "Ambiguity on uncertainty and the equity premium," Finance Research Letters, Elsevier, vol. 38(C).
    3. Driouchi, Tarik & So, Raymond H.Y. & Trigeorgis, Lenos, 2020. "Investor ambiguity, systemic banking risk and economic activity: The case of too-big-to-fail," Journal of Corporate Finance, Elsevier, vol. 62(C).
    4. Yan, Jingzhou & Mu, Congming & Yan, Qianhui & Luo, Deqing, 2023. "Robust leverage choice of hedge funds with rare disasters," Finance Research Letters, Elsevier, vol. 54(C).
    5. Izhakian, Yehuda, 2020. "A theoretical foundation of ambiguity measurement," Journal of Economic Theory, Elsevier, vol. 187(C).
    6. Luo, Deqing & Wu, Xiaoping & Xu, Jiawen & Yan, Jingzhou, 2022. "Robust leverage decision under locked wealth and high-water mark contract," Finance Research Letters, Elsevier, vol. 46(PB).
    7. Kim, Hwa-Sung, 2021. "Risk management and optimal capital structure under ambiguity," Finance Research Letters, Elsevier, vol. 40(C).
    8. Larry G. Epstein & Martin Schneider, 2007. "Learning Under Ambiguity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1275-1303.
    9. Yehuda Izhakian & David Yermack & Jaime F. Zender, 2022. "Ambiguity and the Tradeoff Theory of Capital Structure," Management Science, INFORMS, vol. 68(6), pages 4090-4111, June.
    10. Patrick Augustin & Yehuda Izhakian & Stijn Van Nieuwerburgh, 2020. "Ambiguity, Volatility, and Credit Risk," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1618-1672.
    11. Izhakian, Yehuda & Yermack, David, 2017. "Risk, ambiguity, and the exercise of employee stock options," Journal of Financial Economics, Elsevier, vol. 124(1), pages 65-85.
    12. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    13. Jun Liu, 2005. "An Equilibrium Model of Rare-Event Premia and Its Implication for Option Smirks," The Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 131-164.
    14. Menachem Brenner & Yehuda Izhakian, 2022. "Risk and Ambiguity in Turbulent Times," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 12(01), pages 1-16, March.
    15. Patrick Augustin & Yehuda Izhakian & Stijn Van Nieuwerburgh, 2020. "Ambiguity, Volatility, and Credit Risk," Review of Finance, European Finance Association, vol. 33(4), pages 1618-1672.
    16. Lashkaripour, Mohammadhossein, 2023. "ESG tail risk: The Covid-19 market crash analysis," Finance Research Letters, Elsevier, vol. 53(C).
    17. Yehuda Izhakian & Simon Benninga, 2011. "The Uncertainty Premium in an Ambiguous Economy," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 323-354.
    18. Izhakian, Yehuda, 2017. "Expected utility with uncertain probabilities theory," Journal of Mathematical Economics, Elsevier, vol. 69(C), pages 91-103.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Asano, Takao & Cai, Xiaojing & Sakemoto, Ryuta, 2024. "Currency portfolios and global foreign exchange ambiguity," Finance Research Letters, Elsevier, vol. 65(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Qiang & Han, Yu, 2023. "Options market ambiguity and its information content," Journal of Financial Markets, Elsevier, vol. 64(C).
    2. Ben-Rephael, Azi & Cookson, J. Anthony & izhakian, yehuda, 2022. "Trading, Ambiguity and Information in the Options Market," SocArXiv ewunv, Center for Open Science.
    3. Qiang Chen & Yu Han & Ying Huang, 2024. "Market‐wide overconfidence and stock returns," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(1), pages 3-26, January.
    4. Yehuda Izhakian & David Yermack & Jaime F. Zender, 2022. "Ambiguity and the Tradeoff Theory of Capital Structure," Management Science, INFORMS, vol. 68(6), pages 4090-4111, June.
    5. Fu, Ruonan & Melenberg, Bertrand & Schweizer, Nikolaus, 2023. "Comment on “A theoretical foundation of ambiguity measurement” [J. Econ. Theory 187 (2020) 105001]," Journal of Economic Theory, Elsevier, vol. 207(C).
    6. Ben-Rephael, Azi & Cookson, J. Anthony & izhakian, yehuda, 2022. "Do I Really Want to Hear The News? Public Information Arrival and Investor Beliefs," SocArXiv ud7yw, Center for Open Science.
    7. Izhakian, Yehuda, 2020. "A theoretical foundation of ambiguity measurement," Journal of Economic Theory, Elsevier, vol. 187(C).
    8. Ayoub, Mahmoud & Qadan, Mahmoud, 2024. "Ambiguity and risk in the oil market," Economic Modelling, Elsevier, vol. 132(C).
    9. Doron Nisani & Mahmoud Qadan & Amit Shelef, 2022. "Risk and Uncertainty at the Outbreak of the COVID-19 Pandemic," Sustainability, MDPI, vol. 14(14), pages 1-12, July.
    10. Ronald Klingebiel & Feibai Zhu, 2023. "Ambiguity aversion and the degree of ambiguity," Journal of Risk and Uncertainty, Springer, vol. 67(3), pages 299-324, December.
    11. Brenner, Menachem & Izhakian, Yehuda, 2018. "Asset pricing and ambiguity: Empirical evidence⁎," Journal of Financial Economics, Elsevier, vol. 130(3), pages 503-531.
    12. Massimo Guidolin & Francesca Rinaldi, 2013. "Ambiguity in asset pricing and portfolio choice: a review of the literature," Theory and Decision, Springer, vol. 74(2), pages 183-217, February.
    13. Baillon, Aurélien & Bleichrodt, Han & Li, Chen & Wakker, Peter P., 2021. "Belief hedges: Measuring ambiguity for all events and all models," Journal of Economic Theory, Elsevier, vol. 198(C).
    14. Li, Wenhui & Ockenfels, Peter & Wilde, Christian, 2021. "The effect of ambiguity on price formation and trading behavior in financial markets," SAFE Working Paper Series 326, Leibniz Institute for Financial Research SAFE.
    15. Takao Asano & Xiaojing Cai & Ryuta Sakemoto, 2023. "Time-varying ambiguity shocks and business cycles," KIER Working Papers 1094, Kyoto University, Institute of Economic Research.
    16. Kim, Eung-Bin & Byun, Suk-Joon, 2021. "Risk, ambiguity, and equity premium: International evidence," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 321-335.
    17. Hwa-Sung Kim, 2023. "Effects of ambiguity on innovation strategies," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-27, December.
    18. Agarwal, Vikas & Arisoy, Y. Eser & Naik, Narayan Y., 2017. "Volatility of aggregate volatility and hedge fund returns," Journal of Financial Economics, Elsevier, vol. 125(3), pages 491-510.
    19. Li, Wenhui & Wilde, Christian, 2021. "Separating the effects of beliefs and attitudes on pricing under ambiguity," SAFE Working Paper Series 311, Leibniz Institute for Financial Research SAFE.
    20. Gonçalo Faria & João Correia-da-Silva, 2014. "A closed-form solution for options with ambiguity about stochastic volatility," Review of Derivatives Research, Springer, vol. 17(2), pages 125-159, July.

    More about this item

    Keywords

    Ambiguity; Knightian uncertainty; Stock market seasonality; Volatility index;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000205. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.