SEARCH

SEARCH BY CITATION

ABSTRACT

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.