Faithin Omaha eBook Collection

Download or read book Dividend Initiations, Information Content and Informed Trading in the Options Market written by Balasingham Balachandran and published by . This book was released on 2016 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find that informed trading in the option market prior to dividend initiation is negatively related to announcement period price reactions. This relation is more prevalent among firms with abnormal trading in call options, higher stock price runup, and higher option liquidity. We also find improvements in stock liquidity following dividend initiation. The improvement in stock liquidity is positively related to the increase in institutional investors' holdings, and negatively related to the relative size of the dividend initiation payment and preannouncement option trading. We further find positive abnormal earnings following dividend initiation. Overall, these findings indicate that dividend initiation conveys information regarding sustainable future earnings and improvements in liquidity, and informed traders are active in the option market prior to dividend initiation.