Short Selling around Dividend Announcements and Ex-Dividend Days

34 Pages Posted: 29 May 2008 Last revised: 17 Nov 2009

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Kathleen P. Fuller

University of Mississippi - School of Business Administration

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: November 16, 2009

Abstract

We examine short selling around dividend announcements and ex-dividend dates. Contrary to our initial expectation, we do not find abnormally low (high) short-selling activity prior to announced dividend increases (decreases), which runs counter to the argument that short sellers have the ability to acquire private information before its public dissemination. However, we find that short selling prior to unfavorable dividend announcements is less profitable than short selling during non-event times, suggesting that some dividend announcements are not informative (Gonedes, 1978, and Benartzi, Michaely, and Thaler, 1997). Around ex-dividend dates, we do find abnormal short selling, which may be explained by the return pattern around ex-dividend days documented by Lakonishok and Vermaelen (1986), who suggest that demand for a particular stock by dividend capture traders drives stock prices above their fundamental value thus providing a profitable trading opportunity for short sellers. Consistent with this conjecture, we find that short selling on and after the ex-dividend day is more profitable as the negative relation between short selling and future returns is stronger on and after the ex-dividend day than during other times.

Keywords: Dividends, Short Selling

Suggested Citation

Blau, Benjamin M. and Petrie Fuller, Kathleen and Van Ness, Robert A., Short Selling around Dividend Announcements and Ex-Dividend Days (November 16, 2009). Available at SSRN: https://ssrn.com/abstract=1138382 or http://dx.doi.org/10.2139/ssrn.1138382

Benjamin M. Blau

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322
United States

Kathleen Petrie Fuller

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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