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INVESTOR EXPECTATIONS OF VOLATILITY INCREASES AROUND LARGE STOCK SPLITS AS IMPLIED IN CALL OPTION PREMIA
Author(s) -
Klein Linda S.,
Peterson David R.
Publication year - 1988
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1988.tb00067.x
Subject(s) - volatility (finance) , inefficiency , economics , implied volatility , volatility smile , financial economics , volatility swap , stock (firearms) , volatility risk premium , call option , monetary economics , econometrics , mechanical engineering , engineering , microeconomics
Recent studies find abnormal common stock price behavior associated with ex‐dates of stock splits. Volatility increases are substantia) and abrupt. This study extends previous analyses to the options market by examining investor perceptions of volatility increases through implied standard deviations of returns. Investors fail to anticipate volatility increases until the ex‐date. Furthermore, abnormal option returns are present. The increased volatility and these results suggest option market inefficiency.