Are Cross-Sectional Differences in Ex-Dividend Stock Returns Priced By The Options Markets?

Monday, March 26, 2018 - 4:30pm EDT

Speaker: Dr. Brian Healy


I find that the implied dividend for a stock, calculated on its cum-dividend date, contains information on its subsequent one-day return. I suggest that this is at least partly due to option traders having an informed estimate of the ratio of stock price drop to discounted dividend for those stocks going ex-dividend. This ratio is found to be significantly less than 1 on average confirming the persistence of the so called ex-dividend day anomaly, but it varies greatly across stocks.

Specifically I show that the difference between the implied dividend and the actual dividend for a stock contains significant information on the cross-sectional variation in the stock's ex-dividend day unhedged and hedged returns. I find using portfolio sorts and regression tests that stocks with low (high) values of implied dividend relative to actual dividend are more (less) likely to experience high (low) abnormal unhedged and hedged returns over the ex-dividend day. Furthermore the representative options trader has higher quality information on ex-dividend day returns for stocks with lower idiosyncratic risk, higher liquidity and higher dividends which is consistent with the dividend clientele theory.


Brian received his MA in Mathematics from Trinity College Dublin in 1998 and an MPhil in Mathematical Statistics from the University of Cambridge in 1999. From 1999 through to 2011 he worked in the options business both as a quantitative analyst and as an exotic option trader with such firms as Citigroup, Barclays Capital and Deutsche Bank. He then founded his own consultancy business modelling complex risks and completed a part-time PhD in Finance from University College Dublin where he also taught modules on Derivative Securities to graduate students in Quantitative Finance and Finance. Brian is visiting the Financial and Risk Engineering Department for the Spring semester.

R​efreshments will be served​ and we look forward to seeing you there​.​