Dividend Capture Returns: Anomaly or Risk Premium? Evidence from the Equity Options Markets

102 Pages Posted: 20 Feb 2019

See all articles by Brian Healy

Brian Healy

NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering

Conall O'Sullivan

University College Dublin (UCD) - Michael Smurfit Graduate School of Business

Date Written: February 8, 2019

Abstract

In the run-up to the ex-dividend day a measure based on option implied dividends predicts ex-day abnormal stock returns. These expected ex-dividend day returns increase on stocks where it is less worthwhile to capture the dividend, stocks that are less liquid, stocks with high idiosyncratic risk, and stocks that have experienced a build up in selling pressure. The evidence from the options markets suggests the positive abnormal ex-day returns, net of transactions costs, achieved by institutions skilled in trading are a risk premium for their role in providing liquidity to non-informational stock traders.

Suggested Citation

Healy, Brian and O'Sullivan, Conall, Dividend Capture Returns: Anomaly or Risk Premium? Evidence from the Equity Options Markets (February 8, 2019). Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 19-2, Available at SSRN: https://ssrn.com/abstract=3337964 or http://dx.doi.org/10.2139/ssrn.3337964

Brian Healy

NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering ( email )

Brooklyn, NY 11201
United States

Conall O'Sullivan (Contact Author)

University College Dublin (UCD) - Michael Smurfit Graduate School of Business ( email )

Blackrock, Co. Dublin
Ireland
+353 1 716 8836 (Phone)
+353 1 283 5482 (Fax)

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