The Information Content of Stock Split Announcements: Do Options Matter?

Individual stock-option prices and credit spreads

“…While the number of statistically significant factors in credit spreads is difficult to estimate, most papers find two or three factors. 14 To be conservative, we use the first five factors as capturing systematic variation in credit spreads with a total R 2 of 93.9%.…”

Stock price response to S&P 500 index inclusions: Do options listings and options trading volume matter?

“…Specifically, we study the effect options listings have on the stock price response of firms added to the S&P 500 index. In this respect, our study is related to that of Chern et al (2008) who find that the announcement of a stock split conveys less new information to the market for a stock that is optioned than for one that is not. However, we document an insignificant relation between options listings and abnormal returns associated with S&P 500 index inclusions.…”

“…Bhushan (1994) uses the stock price as a proxy for direct trading costs, and dollar trading volume as a proxy for the inverse of direct trading costs. Chern et al (2008) hypothesize that heavily traded stocks are more liquid and more informationally efficient. We use the logarithm of the stock's trading volume (TRADING), measured as the mean trading volume between event days −100 and −21 relative to the S&P 500 inclusion announcement date, scaled by common shares outstanding, and the closing stock price 21 days before the announcement (PRC) to proxy for trading costs and liquidity.…”

“…Options provide investors with costeffective and flexible mechanisms through which they can trade on new information and options trading is associated with greater information production and investor awareness for the underlying stock (Chern et al, 2008). Back (1993) and Mayhew et al (1995) argue that lower transaction costs, greater leverage, an absence of short sale constraints, and the ability to trade on the future direction of volatility make the options market a preferred venue for informed trading.…”

Stock split size, signaling and earnings management: Evidence from the Spanish market

“…Chern, Tandon, Yu, & Webb (2008) hold that a higher run-up leads to lower abnormal returns, whereas Leledakis, Papaioannou, Travlos, & Tsangarakis (2009), in an explanation compatible with the momentum effect, argue the opposite as the run-up would reflect expectations of higher future profits. In our sample, the market reacts positively to splits with both high and low run-ups, and although abnormal returns on the announcement day are higher in the first group, there is no clear pattern in the cumulative abnormal returns on the following days.…”