Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing Before and After Decimalization
John R. Graham
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)
Michael R. Roberts
The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)
January 15, 2003
By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8ths and 1/16ths to decimals. This study examines the effect of this change in price quotations on ex-dividend day activity. We find that abnormal ex-dividend day returns increase in the 1/16th and decimal pricing eras, relative to the 1/8thera, which is inconsistent with microstructure explanations of the ex-day price movements. We also find that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains affects ex-day pricing.
Number of Pages in PDF File: 45
Keywords: Ex-dividend, transaction costs, taxes, decimalization
JEL Classification: H20, G35working papers series
Date posted: July 21, 2002
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