The information content of stock split announcements

Do options matter?

Keh Yiing Chern, Kishore Tandon, Susana Yu, Gwendolyn Webb

Research output: Contribution to journalArticleResearchpeer-review

21 Citations (Scopus)

Abstract

We provide a new test of the informational efficiency of trading in stock options in the context of stock split announcements. These announcements tend to be associated with positive abnormal returns. Our traditional event study results show abnormal returns that are significantly lower for optioned than non-optioned stocks, whether traded on the NYSE, Amex, or Nasdaq. After controlling for market returns, capitalization, book-to-market ratio, and trading volume, we find that the abnormal returns are significantly lower for NYSE/Amex optioned than non-optioned stocks. Although the results for Nasdaq stocks are not as clear, the overall effects tend to be lower after optioning. These findings are consistent with the hypothesis that the prices of optioned stocks embody more information, diminishing the impact of the stock split announcement. They provide new evidence of the beneficial effects of options on their underlying stocks.

Original languageEnglish
Pages (from-to)930-946
Number of pages17
JournalJournal of Banking and Finance
Volume32
Issue number6
DOIs
StatePublished - 1 Jun 2008

Fingerprint

Information content
Announcement
Stock splits
Abnormal returns
Nasdaq
New York Stock Exchange
Stock options
Capitalization
Trading volume
Market returns
Book-to-market ratio
Event study
Informational efficiency

Keywords

  • Information efficiency
  • Stock split announcement
  • Stocks options

Cite this

Chern, Keh Yiing ; Tandon, Kishore ; Yu, Susana ; Webb, Gwendolyn. / The information content of stock split announcements : Do options matter?. In: Journal of Banking and Finance. 2008 ; Vol. 32, No. 6. pp. 930-946.
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The information content of stock split announcements : Do options matter? / Chern, Keh Yiing; Tandon, Kishore; Yu, Susana; Webb, Gwendolyn.

In: Journal of Banking and Finance, Vol. 32, No. 6, 01.06.2008, p. 930-946.

Research output: Contribution to journalArticleResearchpeer-review

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