Dividend and Uncertainty: Evidence from the italian market

Abstract

In this paper we investigate the behaviour of the market around dividend payment dates. Our empirical analysis, based on a Bayesian approach applied to Italian stock data, confirms the presence of abnormal returns at the ex-dividend date, as already documented in the literature for other markets. Calibrating a suitable model introduced in Battauz, Quadratic Hedging for Asset Derivatives with Discrete Stochastic Dividends, Insurance: Mathematics and Economics 32/2 (2003) to take care of the additional randomness pertubing the market around dividend payment dates, we investigate the effects on the derivative evaluation. Looking at the NoArbitrage prices of American call options written on some Italian dividend-paying stock and comparing them with the marketed prices, we conclude that the effect of this additional randomness can be neglected