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THE EFFECTS OF THE ANNOUNCEMENTS OF DIVIDEND INCREASES ON STOCK RETURN VOLATILITY: THE EVIDENCE FROM THE OPTIONS MARKET
Author(s) -
Jayaraman Narayanan,
Shastri Kuldeep
Publication year - 1993
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1993.tb00283.x
Subject(s) - dividend , volatility (finance) , economics , implied volatility , financial economics , stock (firearms) , volatility smile , monetary economics , econometrics , finance , mechanical engineering , engineering
This paper examines the impact of the announcements of dividend increases on the volatility of underlying stock returns implied by option prices, and analyses whether the impact is related to the label associated with the dividend increase. The results suggest that the announcements of labelled dividend increases are accompanied by a decrease in implied volatility, while the announcements of unlabelled increases in dividends are associated with no change in implied volatility. These results are consistent with the hypothesis that signal implicit in the announcements of dividend increases provides noisy information about the firm's volatility.