How the 52-week high and low affect beta and volatility

Abstract

We provide a new perspective on stock price behavior around 52-week highs and lows. Instead of focusing on noisy measurements of abnormal returns (alpha), our main focus is to analyze whether a stock’s beta, return volatility and option-implied volatility change (i) when stock prices approach their 52-week high or low, and (ii) when stock prices break through these highs or lows. We find that betas and volatilities decrease when approaching a high or low, and that volatilities increase after breakthroughs. The effects are economically large and very significant, and consistent across stock and stock-option markets. Among several explanations for our findings, we find most support for the anchoring theory.