The Option-Implied Ex-Dividend Drop

44 Pages Posted: 10 Mar 2020

See all articles by Robert Guerrero

Robert Guerrero

Strategy&, part of the PwC network

Date Written: February 18, 2020

Abstract

Several recent studies have used option-implied dividends to investigate the term structure of equity. A crucial question is whether these dividend strips need to be adjusted to take into account the difference in taxation between dividends and capital gains. Unlike prior research, we find an option-implied ex-day decline that is less than the cash dividend and of a similar magnitude to the overnight ex-day stock price decline. In addition, we use put-call arbitrage to identify several option mispricing factors. Our method for calculating market expectations of dividends is useful for research topics including dividend policy, analyst forecasts, and asset pricing.

Keywords: ex-dividend, option mispricing, price efficiency, dividend forecasts

JEL Classification: G12, G13, G14, G17

Suggested Citation

Guerrero, Robert, The Option-Implied Ex-Dividend Drop (February 18, 2020). Available at SSRN: https://ssrn.com/abstract=3539931 or http://dx.doi.org/10.2139/ssrn.3539931

Robert Guerrero (Contact Author)

Strategy&, part of the PwC network ( email )

Level 19/2 Riverside Quay
Melbourne, Victoria 3006
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
214
PlumX Metrics