Ex-Dividend Profitability and Institutional Trading Skill

48 Pages Posted: 19 Mar 2014 Last revised: 15 Apr 2016

See all articles by Tyler R. Henry

Tyler R. Henry

Miami University

Jennifer L. Koski

University of Washington - Michael G. Foster School of Business

Date Written: April 14, 2016

Abstract

We use institutional trading data to examine whether skilled institutions exploit positive abnormal ex-dividend returns. Results show that institutions concentrate trading around certain ex-dates, and earn higher profits around these events. Dividend capture trades represent 6% of all institutional buy trades but contribute 15% of overall abnormal returns. Institutional dividend capture trading is persistent. Institutional ex-day profitability is also strongly cross-sectionally related to trade execution skill. The relation between execution skill and profits disappears around placebo, non-ex-days. Results suggest that skilled institutions target certain opportunities rather than benefiting uniformly through time. Furthermore, only skilled institutions can profit from dividend capture.

Keywords: Institutional investors, trader skill, ex-day returns, dividend capture, costly arbitrage

JEL Classification: G23, G35

Suggested Citation

Henry, Tyler R. and Koski, Jennifer Lynch, Ex-Dividend Profitability and Institutional Trading Skill (April 14, 2016). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2410534 or http://dx.doi.org/10.2139/ssrn.2410534

Tyler R. Henry

Miami University ( email )

Oxford, OH 45056
United States

Jennifer Lynch Koski (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-7975 (Phone)
206-685-9392 (Fax)

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