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Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing Before and After Decimalization

45 Pages Posted: 21 Jul 2002  

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Roni Michaely

Johnson@Cornell Tech, Cornell University

Michael R. Roberts

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2003

Abstract

By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8ths and 1/16ths to decimals. This study examines the effect of this change in price quotations on ex-dividend day activity. We find that abnormal ex-dividend day returns increase in the 1/16th and decimal pricing eras, relative to the 1/8thera, which is inconsistent with microstructure explanations of the ex-day price movements. We also find that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains affects ex-day pricing.

Keywords: Ex-dividend, transaction costs, taxes, decimalization

JEL Classification: H20, G35

Suggested Citation

Graham, John R. and Michaely, Roni and Roberts, Michael R., Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing Before and After Decimalization (January 15, 2003). Available at SSRN: https://ssrn.com/abstract=318483 or http://dx.doi.org/10.2139/ssrn.318483

John Robert Graham

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Roni Michaely

Johnson@Cornell Tech, Cornell University ( email )

111 8th Avenue #302
New York, NY 10011
United States

Michael R. Roberts (Contact Author)

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )

3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)

HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/

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