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Ex-dividend price behavior of common stocks

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  • John H. Boyd
  • 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 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.

Suggested Citation

  • John H. Boyd & Ravi Jagannathan, 1994. "Ex-dividend price behavior of common stocks," Working Papers 500, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmwp:500
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