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Ex-dividend day price behaviour: a review of the issues

Journal of Economics and Business - SPOUDAI

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Title Ex-dividend day price behaviour: a review of the issues
Ex-dividend day price behaviour: a review of the issues
 
Creator Αβρααμίδης, Ανδρέας
Molinero, Cecilio Mar
 
Subject Μετοχές; Δείκτες μετοχών
Dividends; Stocks; Prices
 
Description The aim of this paper is to review the literature relating to the ex-dividend day price
behaviour of securities, for both the US and UK Stock Markets.
Two major hypotheses have been developed that attempt to explain the cause and magnitude
of the price drop-off, relative to the dividend, on the ex-dividend day. These are: (i) the long-term
trading hypothesis, which argues that ex-day pricing reflects the marginal tax rates prevailing
on that date, and (ii) the short-term trading hypothesis that argues that ex-day prices are
determined by the arbitrage activity of short-term traders. Depending on who we assume to be
the dominant trader around the ex-dividend day, we obtain different predictions about the ex-day
price behaviour.
There exists some further research, however, that suggests that both the above models offer
an insufficient description of what in fact goes on on the ex-dividend day, because they ignore
the existence of buying pressure both before and after the ex-day and risk considerations.
The implications of the current UK tax regime on ex-day pricing will be examined, with
particular reference to specific investor groups. In addition to this, we will consider how the
institutional changes brought about by the Big Bang of 27th October 1986, might influence the
ex-day price behaviour.
 
Publisher University of Piraeus
 
Date 2000-01-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier https://spoudai.unipi.gr/index.php/spoudai/article/view/1114
 
Source SPOUDAI - Journal of Economics and Business; Vol 50, No 1-2 (2000); 3-39
2241-424X
1105-8919
 
Language eng
 
Relation https://spoudai.unipi.gr/index.php/spoudai/article/view/1114/1193
 
Rights Copyright (c) 2000 SPOUDAI - Journal of Economics and Business