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Ex-dividend Price Behavior of Common Stocks

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Author Info
Boyd, John H
Jagannathan, Ravi

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Abstract

This study examines common stock prices around ex-dividend dates. Such price data usually contain a mixture of observations--some with and some without arbitrageurs and/or dividend capturers active. Our theory predicts that such mixing will result in a nonlinear relation between percentage price drop and dividend yield--not the commonly assumed linear relation. This prediction and another important prediction of theory are supported empirically. In a variety of tests, marginal price drop is not significantly different from the dividend amount. Thus, over the last several decades, one-for-one marginal price drop has been an excellent (average) rule of thumb. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 7 (1994)
Issue (Month): 4 ()
Pages: 711-41
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Handle: RePEc:oup:rfinst:v:7:y:1994:i:4:p:711-41

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Elton, Edwin J & Gruber, Martin J, 1970. "Marginal Stockholder Tax Rates and the Clientele Effect," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 68-74, February. [Downloadable!] (restricted)
  2. Fumio Hayashi & Ravi Jagannathan, 1990. "Ex-Day Behavior of Japanese Stock Prices: New Insights from New Methodology," NBER Working Papers 3421, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Lakonishok, Josef & Vermaelen, Theo, 1986. "Tax-induced trading around ex-dividend days," Journal of Financial Economics, Elsevier, vol. 16(3), pages 287-319, July. [Downloadable!] (restricted)
  4. Constantinides, George M, 1986. "Capital Market Equilibrium with Transaction Costs," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 842-62, August. [Downloadable!] (restricted)
  5. Miller, Merton H & Scholes, Myron S, 1982. "Dividends and Taxes: Some Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1118-41, December. [Downloadable!] (restricted)
  6. Poterba, James M., 1986. "The market valuation of cash dividends : The citizens utilities case reconsidered," Journal of Financial Economics, Elsevier, vol. 15(3), pages 395-405, March. [Downloadable!] (restricted)
  7. Karpoff, Jonathan M. & Walkling, Ralph A., 1990. "Dividend capture in NASDAQ stocks," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 39-65. [Downloadable!] (restricted)
  8. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January. [Downloadable!] (restricted)
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  9. Eades, Kenneth M. & Hess, Patrick J. & Kim, E. Han, 1984. "On interpreting security returns during the ex-dividend period," Journal of Financial Economics, Elsevier, vol. 13(1), pages 3-34, March. [Downloadable!] (restricted)
  10. Barclay, Michael J., 1987. "Dividends, taxes, and common stock prices : The ex-dividend day behavior of common stock prices before the income tax," Journal of Financial Economics, Elsevier, vol. 19(1), pages 31-44, September. [Downloadable!] (restricted)
  11. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dai, Qinglei & Rydqvist, Kristian, 2007. "Investigation of the Costly-Arbitrage Model of Price Formation Around the Ex-Dividend Day," CEPR Discussion Papers 6074, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, regulations, and the value of U.S. and U.K. corporations," Staff Report 309, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2007. "Direct Evidence of Dividend Tax Clienteles," SIFR Research Report Series 51, Institute for Financial Research. [Downloadable!]
  4. Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2006. "Direct Evidence of Dividend Tax Clienteles," CEPR Discussion Papers 6005, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Murray Frank & Ravi Jagannathan, 1997. "Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes," Staff Report 229, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  6. Bell, Leonie & Jenkinson, Tim, 2001. "New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor," CEPR Discussion Papers 2946, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Daunfeldt, Sven-Olov, 2005. "Tax-Induced Trading and the Identity of the Marginal Investor: Evidence from Sweden," HUI Working Papers 3, The Swedish Retail Institute (HUI). [Downloadable!]
    Other versions:
  8. Rakesh Bali, 2003. "Variation in ex day dividend pricing: Myth or reality?," Journal of Economics and Finance, Springer, vol. 27(2), pages 190-210, June. [Downloadable!] (restricted)
  9. VT Alaganar & Graham Partington & Max Stevenson, 1999. "Do Ex-Dividend Drop-Offs Differ Across Markets? Evidence from Internationally Traded (ADR) Stocks," Working Paper Series 92, School of Finance and Economics, University of Technology, Sydney. [Downloadable!]
  10. Daunfeldt, Sven-Olov & Selander, Carina & Wikström, Magnus, 2006. "Taxation, Dividend Payments and Ex-Day Price Changes," UmeÃ¥ Economic Studies 684, Umeå University, Department of Economics. [Downloadable!]
  11. Andrew Ang & Vineer Bhansali & Yuhang Xing, 2008. "Taxes on Tax-Exempt Bonds," NBER Working Papers 14496, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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