Price and Volume Behavior Around the Ex-Dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and Their Underlying Australian Stocks

35 Pages Posted: 30 May 2008

See all articles by Aelee Jun

Aelee Jun

University of Wollongong - Faculty of Commerce - School of Accounting and Finance

V. T. Alaganar

affiliation not provided to SSRN

Graham Partington

University of Sydney - School of Business - Finance Discipline; Financial Research Network (FIRN)

Maxwell Stevenson

University of Sydney - School of Business - Finance Discipline; Financial Research Network (FIRN)

Abstract

Australian residents are tax-advantaged, relative to American investors, in their access to imputation tax credits on Australian stocks. This paper provides evidence consistent with a difference in dividend valuations between Australian stocks and their American Depositary Receipts (ADRs). The ex-dividend drop-off ratio is lower for ADRs relative to their underlying Australian stocks and this difference is most pronounced for stocks that have imputation tax credits and high dividend yields. Consistent with dividend capture trading in the Australian market, the difference in drop-off ratios is driven by both temporarily higher Australian cum-prices and temporarily lower Australian ex-prices. Abnormal trading volume about the ex-day is present in both markets and in the Australian market the abnormal volume is greater for dividends with imputation tax credits. Dividend-related trading leads to price differences across the markets on the ex-dividend day. Price differences are also observed when the stock and the ADR trade with different dividend entitlements due to different ex-dividend dates.

Suggested Citation

Jun, Aelee and ALAGANAR, V. T. and Partington, Graham and Stevenson, Max, Price and Volume Behavior Around the Ex-Dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and Their Underlying Australian Stocks. International Review of Finance, Vol. 8, Issue 1-2, pp. 21-55, March/June 2008, Available at SSRN: https://ssrn.com/abstract=1138833 or http://dx.doi.org/10.1111/j.1468-2443.2008.00073.x

Aelee Jun (Contact Author)

University of Wollongong - Faculty of Commerce - School of Accounting and Finance ( email )

University of Wollongong NSW
2522
Australia

V. T. ALAGANAR

affiliation not provided to SSRN

Graham Partington

University of Sydney - School of Business - Finance Discipline ( email )

Building H69
Sydney NSW, 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Max Stevenson

University of Sydney - School of Business - Finance Discipline ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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