Ex-Dividend Profitability and Institutional Trading Skill
48 Pages Posted: 19 Mar 2014 Last revised: 15 Apr 2016
Date Written: April 14, 2016
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
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