Journal of Finance Vol. 44 No. 5 1989
Stock Splits, Volatility Increases, and Implied Volatilities
Abstract
A test of the efficiency of the Chicago Board Options Exchange, relative to post-split 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 (ISDs) around split announcement and ex-dates. Comparisons with a control group of stocks find no relative increase in ISDs 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 CBOE is efficient can be rejected.
- DOI
- 10.2307/2328647
- Volume
- 44
- Issue
- 5
- Pages
- 1361
- Sources
- openalex crossref