The Information Content of Stock Split Announcements: Do Options Matter?
30 Pages Posted: 3 May 2006
Date Written: January 2006
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: Suggested Citation