Dividend Capture Returns: Anomaly or Risk Premium? Evidence from the Equity Options Markets
102 Pages Posted: 20 Feb 2019
Date Written: February 8, 2019
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.
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