Dividend Surprises Inferred from Option and Stock Prices

  • Published: Apr 30, 2012
  • Pages: 1623-1640
  • DOI: 10.1111/j.1540-6261.1992.tb04675.x


This paper introduces a new method to measure the unexpected component of dividend announcements. While measures used previously were based on various arbitrary models of dividend expectations, our suggested method compares the reaction of stock and option prices to dividend announcements. Our measure is compared to commonly used model‐based measures, to a Box‐Jenkins time‐series‐based measure, and to a Value‐Line Investor Survey‐based measure of dividend surprises. The new measure is more highly correlated with the market's reaction to the announcements than are alternative measures of dividend surprises. The new measure is also shown to be insensitive to the extent to which the options used to identify unexpected dividend announcements are in‐ or out‐of‐the‐money.

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