We calculate dividend drop ratios over periods with changing quotation and taxation frameworks to assess the validity of competing explanations. Using intraday prices adjusted for non-trading, we provide a more accurate picture of price changes due to dividend payments than those produced in previous literature. Intraday estimates for dividend drop ratios are consistently higher than those calculated with end of day prices. Further findings indicate that stocks trading ex-dividend, on average, underperform the market over the following month. We attribute this phenomenon to dividend capture trading by tax advantaged and tax indifferent market participants.
|Title of host publication||Proceedings of the seventeenth annual conference of the multinational finance society|
|Editors||X. Freixas, T. Malliaris, P. Theodossiou|
|Publisher||Multinational Finance Society|
|Number of pages||24|
|Publication status||Published - 2010|
|Event||Annual Conference of the Multinational Finance Society - Barcelona, Spain|
Duration: 27 Jun 2010 → 30 Jun 2010
Conference number: 17th
|Conference||Annual Conference of the Multinational Finance Society|
|Period||27/06/10 → 30/06/10|
Balasubramaniam, V., Bertin, W., Henker, T., & Prather, L. (2010). Re-examining the dividend drop ratios with dividend capture trading. In X. Freixas, T. Malliaris, & P. Theodossiou (Eds.), Proceedings of the seventeenth annual conference of the multinational finance society (pp. 1-24). Multinational Finance Society.