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Option Implied Volatility and Dividend Yield : To investigate the intricate relationship between implied volatility and dividend yield within financial markets.

This thesis investigates the relationship between implied volatility and dividend yield in the options market, focusing on testing the Bird-in-Hand theory versus the Dividend Irrelevancy theory. Utilizing panel data analysis and regression techniques, with both ordinary and lagged regressions, the study explores how dividend yield impacts European options implied volatility across European markets over ten years from February 2013 to February 2023. Employing the Hausman specification test, Breusch Pagan multiplier test, cluster standard errors, and heteroskedasticity for robustness. The analysis includes both call and put options, incorporating various control variables and market factors. The findings reveal that changes in dividend yield consistently impact call option implied volatility and also exhibit a stronger and more consistent negative relationship with put option implied volatility, overall, supporting the Bird-in-Hand theory. Furthermore, this thesis highlights the importance of considering alternative methodologies, expanding sample sizes, and exploring additional variables to enhance understanding of option pricing dynamics.

Identiferoai:union.ndltd.org:UPSALLA1/oai:DiVA.org:lnu-130386
Date January 2024
CreatorsSjöberg, Gustav, Nestenborg, Jonathan
PublisherLinnéuniversitetet, Institutionen för nationalekonomi och statistik (NS)
Source SetsDiVA Archive at Upsalla University
LanguageEnglish
Detected LanguageEnglish
TypeStudent thesis, info:eu-repo/semantics/bachelorThesis, text
Formatapplication/pdf
Rightsinfo:eu-repo/semantics/openAccess

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