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Trading Costs and Ex-Day Behavior: An Examination of Primes and Stocks

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  • P.C. Venkatesh

Abstract

The ex-dividend day behavior of 26 stocks and their derivative, dividend-oriented securities, the Americus Trust Primes is examined. >From the standpoint of cum-ex traders, the prime and the stock offer very similar benefits, but the trading costs for the primes are substantially higher. The results, suggest cum-ex activity in the stock but not in the prime. Specifically, the ex-day relative price drop is larger for stocks and while there is a visible increase in stock volume, there is hardly any unusual trading in the primes. These results are consistent with the propositions that: (i) the ex-day behavior of these securities is related to their trading costs, and (ii) cum-ex trading in the stocks makes their ex-day price drops larger (returns smaller) than they would otherwise be.

Suggested Citation

  • P.C. Venkatesh, 1991. "Trading Costs and Ex-Day Behavior: An Examination of Primes and Stocks," Financial Management, Financial Management Association, vol. 20(3), Fall.
    • Handle: RePEc:fma:fmanag:venkatesh91
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    Cited by:

    1. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
    2. Huckins, Nancy White, 1995. "Repackaging cashflows and the creation of value: The case of primes and scores," International Review of Financial Analysis, Elsevier, vol. 4(2-3), pages 123-142.

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