Variation in ex day dividend pricing: Myth or reality?
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Recent price discreteness based reinterpretation of ex day price adjustments motivates our analysis of dividend pricing around the elimination of fixed commissions in May 1975 and the tax reform acts of 1984 and 1986. Our results are consistent with short-term, tax-neutral traders (arbitrageurs) being the marginal price setters on ex dividend days. In a regression framework, the proportional price drop varies one-for-one with the rounded down dividend scaled by price, and the intercept captures bid-ask spread effects. We document evidence of necessary and sufficient conditions against taxclienteles. We also reconcile some prior conflicting results in the literature. (JEL G12, G35)
KeywordsDividend Yield Price Drop Tick Size Dividend Amount Dividend Price
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