Stock Splits, Volatility Increases, and Implied Volatilities
AbstractA test of the efficiency of the Chicago Board Options Exchange, relative to postsplit increases in the volatility of common stocks, is presented. The Black-Scholes and Roll option pricing formulas are used to examine the behavior of implied standard deviations around split announcement and ex-dates. Comparisons with a control group of stocks find no relative increase in the implied standard deviations of stocks announcing splits. However, a relative increase is detected at the ex-date. Therefore, the joint hypothesis that (1) the Black-Scholes and Roll formulas are true and (2) the Chicago Board Options Exchange is efficient can be rejected. Copyright 1989 by American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 44 (1989)
Issue (Month): 5 (December)
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