Option Implied Dividends

Research output: Working paperDiscussion paperOther research output

Abstract

This is the first paper to calculate and analyze option-implied dividends for individual US companies, while accounting for the early exercise premium. These firm-level implied dividends show substantial variation relative to actual dividends over time as well as in the cross-section. Implied dividends predict actual dividends, particularly upward dividend changes. Stock prices correlate strongly with changes in implied dividends, so much so that price changes are partly reversed subsequently. An announcement to cut dividends causes a stock's price to drop by 2.6% on average, but if it is correctly predicted by implied dividends the response is negligible.
Original languageEnglish
PublisherSSRN
Number of pages58
Publication statusPublished - 2016

Fingerprint

Dividends
Stock prices
Announcement
Price changes
Correlates
Cross section
Premium
Early exercise

Keywords

  • dividends
  • options
  • dividend forecasting
  • stock price response to dividend announcements

Cite this

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title = "Option Implied Dividends",
abstract = "This is the first paper to calculate and analyze option-implied dividends for individual US companies, while accounting for the early exercise premium. These firm-level implied dividends show substantial variation relative to actual dividends over time as well as in the cross-section. Implied dividends predict actual dividends, particularly upward dividend changes. Stock prices correlate strongly with changes in implied dividends, so much so that price changes are partly reversed subsequently. An announcement to cut dividends causes a stock's price to drop by 2.6{\%} on average, but if it is correctly predicted by implied dividends the response is negligible.",
keywords = "dividends, options, dividend forecasting, stock price response to dividend announcements",
author = "Jac Kragt",
year = "2016",
language = "English",
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Option Implied Dividends. / Kragt, Jac.

SSRN, 2016.

Research output: Working paperDiscussion paperOther research output

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N2 - This is the first paper to calculate and analyze option-implied dividends for individual US companies, while accounting for the early exercise premium. These firm-level implied dividends show substantial variation relative to actual dividends over time as well as in the cross-section. Implied dividends predict actual dividends, particularly upward dividend changes. Stock prices correlate strongly with changes in implied dividends, so much so that price changes are partly reversed subsequently. An announcement to cut dividends causes a stock's price to drop by 2.6% on average, but if it is correctly predicted by implied dividends the response is negligible.

AB - This is the first paper to calculate and analyze option-implied dividends for individual US companies, while accounting for the early exercise premium. These firm-level implied dividends show substantial variation relative to actual dividends over time as well as in the cross-section. Implied dividends predict actual dividends, particularly upward dividend changes. Stock prices correlate strongly with changes in implied dividends, so much so that price changes are partly reversed subsequently. An announcement to cut dividends causes a stock's price to drop by 2.6% on average, but if it is correctly predicted by implied dividends the response is negligible.

KW - dividends

KW - options

KW - dividend forecasting

KW - stock price response to dividend announcements

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