Intraday Analysis of the Limit Order Bias on the Ex-Dividend Day of U.S. Common Stocks

International Review of Economics & Finance, volume 72, 2021[10.1016/j.iref.2020.11.017]

43 Pages Posted: 14 Sep 2013 Last revised: 20 Sep 2024

See all articles by Vassilis A. Efthymiou

Vassilis A. Efthymiou

Athens University of Economics and Business - Department of Accounting and Finance

Athanasios Episcopos

Athens University of Economics and Business - Department of Accounting and Finance

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School

Date Written: September 12, 2013

Abstract

This study reexamines Dubofsky’s (1992) limit order adjustment hypothesis via an intraday analysis of minute-by-minute trade and quote data recorded on the ex-dividend days of common stocks listed on the NYSE, AMEX, and NASDAQ. According to Dubofsky’s (1992) model, the asymmetric adjustment of open limit orders for cash dividend payments under NYSE and AMEX rules is sufficient to create abnormal returns on the ex-dividend day. Our empirical evidence shows that the limit order bias arising from the asymmetric limit order adjustment strongly influences the overnight ex-day returns, but it is significantly corrected via active trading until the close of the ex-dividend day. As a result, the significant association of the ex-day price drop discrepancy with the opening limit order bias eventually dissipates before the ex-dividend day close. We conclude that the explanatory power of this microstructure model over the price drop discrepancy at the ex-day close is much less than that suggested by earlier literature on the ex-dividend day.

Keywords: ex-dividend day, intraday price drop ratio, order flow bias

JEL Classification: G14, G39

Suggested Citation

Efthymiou, Vassilis A. and Episcopos, Athanasios and Leledakis, George N. and Pyrgiotakis, Emmanouil G., Intraday Analysis of the Limit Order Bias on the Ex-Dividend Day of U.S. Common Stocks (September 12, 2013). International Review of Economics & Finance, volume 72, 2021[10.1016/j.iref.2020.11.017], Available at SSRN: https://ssrn.com/abstract=2324824 or http://dx.doi.org/10.1016/j.iref.2020.11.017

Vassilis A. Efthymiou (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Athanasios Episcopos

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece
+30 21 0820 3364 (Phone)
+30 21 0822 8816 (Fax)

HOME PAGE: http://www.aueb.gr/users/episcopos

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance ( email )

76 Patission Str.
Athens, 104 34
Greece
+30 210 8203 459 (Phone)
+30 210 8228 816 (Fax)

HOME PAGE: http://www.aueb.gr/en/faculty_page/leledakis-georgios

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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