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

Graham, John R.; Michaely, Roni; Roberts, Michael R.

doi:10.2139/ssrn.318483

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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

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Michael R. Roberts

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

There 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: Suggested Citation

Graham, John Robert 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