Ex-Dividend Day Behavior in the Absence of Taxes and Price Discreteness

ABSTRACT We examine the ex‐dividend day behavior in a unique setting where (1) there are neither taxes on dividends nor on capital gains, (2) stock prices have been decimalized, (3) dividends are distributed annually, and (4) we have data that enable us to examine bid–ask bounce effects. In this eco...

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Bibliographic Details
Published in:International review of finance 2008-09, Vol.8 (3-4), p.103-123
Main Authors: AL YAHYAEE, KHAMIS, PHAM, TOAN, WALTER, TERRY
Format: Article
Language:English
Subjects:
Asked price
Capital gains
Dividends
Economic theory
Scandals
Securities analysis
Stock prices
Studies
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Summary:ABSTRACT We examine the ex‐dividend day behavior in a unique setting where (1) there are neither taxes on dividends nor on capital gains, (2) stock prices have been decimalized, (3) dividends are distributed annually, and (4) we have data that enable us to examine bid–ask bounce effects. In this economy, any price decline that is smaller than the dividends cannot be attributed to taxes and price discreteness. Like previous studies, we find that the stock price drops by less than the amount of dividends and there is a significant positive ex‐day return. By examining abnormal volumes around the ex‐dividend day, we find no evidence of short‐term trading. We are able to account for our results using market microstructure models. When the impact of market microstructure is taken into account, the ex‐dividend drop is not significantly different from the value of the dividend paid.
ISSN:1369-412X
1468-2443
DOI:10.1111/j.1468-2443.2008.00078.x