The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Stock Splits, Volatility Increases, and Implied Volatilities
Published: 12/01/1989 | DOI: 10.1111/j.1540-6261.1989.tb02658.x
AAMIR M. SHEIKH
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.
A Characterization of the Daily and Intraday Behavior of Returns on Options
Published: 06/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb05152.x
AAMIR M. SHEIKH, EHUD I. RONN
The daily and intraday behavior of returns on Chicago Board Options Exchange options is examined. Option returns contain systematic patterns even after adjusting for patterns in the means and variances of the underlying assets. This is consistent with the hypothesis that informed trading in options can make the order flow in the options market informative about the value of the underlying asset, making options nonredundant. The intraday patterns in adjusted option return variances are further consistent with a model of strategic trading by informed and discretionary liquidity traders.