IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

A model of stock price adjustment after dividends

Listed author(s):
  • Maria Rosa Borges

Purpose - The purpose of this paper is to discuss the stock price adjustment after a dividend distribution, allowing for different types of investors and market imperfections, including taxes and transaction costs. Design/methodology/approach - An arbitrage model is developed to determine the possible equilibria for the stock price adjustment, after a dividend distribution. The approach is theoretical, providing general results. Findings - The model shows that, in the presence of different types of investors, a unique equilibrium only exists in the absence of transaction costs. The allowance for market imperfections, such as taxes and transactions costs, implies that there is not a unique equilibrium for the level of stock price adjustment following a dividend distribution event, but rather there is much possible equilibrium. It is showed that the observation of abnormal trading volume around the dividend event may give us some insights on the identification of which investors are present in the market. Practical implications - On future studies of the stock price adjustment after dividend distributions, it should be taken into account that there is no unique equilibrium. Originality/value - The main contribution of this paper is to show that the existence of taxes and transaction costs precludes the determination of a unique equilibrium point for the stock price adjustment after a dividend distribution.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to full text is restricted to subscribers

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 36 (2009)
Issue (Month): 5 (September)
Pages: 508-521

in new window

Handle: RePEc:eme:jespps:v:36:y:2009:i:5:p:508-521
Contact details of provider: Web page:

Order Information: Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Web: Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eme:jespps:v:36:y:2009:i:5:p:508-521. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.