The authors revisit the well-documented stock return anomaly around ex-days and establish a novel link to early exercise of equity options. They show that clustered exercise of in-the-money call options on the last cum-day is associated with substantially lower stock returns on the subsequent ex-day, amounting to a 6.4 bps decrease in daily returns per one standard deviation increase in our early-exercise measure.
The Impact of Early Option Exercise on Ex-Dividend Stock Returns
Research
47 Pages
Key Takeaways
Options drive pressure: More early call exercise is linked to lower ex day returns through post dividend share selling.
Dividend incentives matter: The effect gets stronger when dividend yields are higher and investors have more reason to hold through ex day.
Timing can shift: Weekend gaps and active options trading can pull the pressure forward to the last cum day instead.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
