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The Information Content of Stock Split Announcements: Do Options Matter?

30 Pages Posted: 3 May 2006  

Keh Yiing Chern

Willow Bridge Asset Management

Kishore Tandon

CUNY Baruch College - Zicklin School of Business

Susana Yu

Iona College

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business

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Date Written: January 2006

Abstract

We provide a new test of the informational efficiency of trading in stock options in the context of stock split announcements. Stock split announcements are generally associated with positive abnormal returns. After controlling for market returns, market capitalization, book-to-market ratio, and trading volume, we find that the abnormal returns around stock split announcements are significantly lower for NYSE/Amex stocks that are optioned than for stocks that are not optioned. This is consistent with the hypothesis that the prices of optioned stocks embody more information, diminishing the impact of the stock split announcement. This provides new evidence of the beneficial effects of options on their underlying stocks.

Keywords: stock split announcements, options

JEL Classification: G14, G32

Suggested Citation

Chern, Keh Yiing and Tandon, Kishore and Yu, Susana and Webb, Gwendolyn P., The Information Content of Stock Split Announcements: Do Options Matter? (January 2006). Available at SSRN: https://ssrn.com/abstract=899409 or http://dx.doi.org/10.2139/ssrn.899409

Keh Yiing Chern

Willow Bridge Asset Management ( email )

No Address Available
United States

Kishore Tandon

CUNY Baruch College - Zicklin School of Business ( email )

55 Lexington Avenue
New York, NY 10010
United States
(646) 312-3468 (Phone)
(646) 312-3451 (Fax)

Susana Yu (Contact Author)

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business ( email )

Department of Economics & Finance
P.O. Box B13-289 1 Bernard Baruch Way
New York, NY 10010
United States
646-312-3485 (Phone)

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