Ex-dividend price behavior of common stocks

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Ex-dividend price behavior of common stocks

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John H. Boyd
Ravi Jagannathan

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Ravi Jagannathan

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 some 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.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 173.

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Date of creation: 1994
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Handle: RePEc:fip:fedmsr:173

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Article
- Boyd, John H & Jagannathan, Ravi, 1994. "Ex-dividend Price Behavior of Common Stocks," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(4), pages 711-41. [Downloadable!] (restricted)
Paper
- John H. Boyd & Ravi Jagannathan, 1994. "Ex-dividend price behavior of common stocks," Working Papers 500, Federal Reserve Bank of Minneapolis. [Downloadable!]

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.:

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)
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)
Other versions:
- Fumio Hayashi & Ravi Jagannathan, 1990. "Ex-day behavior of Japanese stock prices: new insights from new methodology," Discussion Paper / Institute for Empirical Macroeconomics 30, Federal Reserve Bank of Minneapolis. [Downloadable!]
- Hayashi, Fumio & Jagannathan, Ravi, 1990. "Ex-day behavior of japanese stock prices: New insights from new methodology," Journal of the Japanese and International Economies, Elsevier, vol. 4(4), pages 401-427, December. [Downloadable!] (restricted)
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)
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)
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)
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)
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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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- Sanford J. Grossman & Guy Laroque, 1988. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," NBER Working Papers 2369, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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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)
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)
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)

Full references

Cited by:
(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.)

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:
- Tim Jenkinson & Leonie Bell, 2000. "New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor," Economics Series Working Papers 024, University of Oxford, Department of Economics. [Downloadable!]
- Leonie Bell & Tim Jenkinson, 2001. "New evidence of the impact of dividend taxation and on the identity of the marginal investor," OFRC Working Papers Series 2001fe14, Oxford Financial Research Centre. [Downloadable!]
- Bell, L. & Jenkinson, T., 2000. "New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor," Economics Series Working Papers 9924, University of Oxford, Department of Economics.
- Leonie Bell & Tim Jenkinson, 2002. "New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor," Journal of Finance, American Finance Association, vol. 57(3), pages 1321-1346, 06. [Downloadable!] (restricted)
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)
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)
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:
- Ellen R. McGrattan & Edward C. Prescott, 2004. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Levine's Bibliography 122247000000000715, UCLA Department of Economics. [Downloadable!]
- Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Review of Economic Studies, Blackwell Publishing, vol. 72(3), pages 767-796, 07. [Downloadable!] (restricted)
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!]
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!]
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:
- Frank, Murray & Jagannathan, Ravi, 1998. "Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes," Journal of Financial Economics, Elsevier, vol. 47(2), pages 161-188, February. [Downloadable!] (restricted)

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