Ex-Dividend Price Behavior of Common Stocks
REVIEW OF FINANCIAL STUDIES Volume 7, Number 3, 1994
Posted: 20 Dec 1998
This study examines common stock prices around ex-dividend dates. Such price data usually contain a mixture of observations -- some with and some without arbitragers and/or dividend capturers active. Our theory predicts that such mixing will result in a nonlinear relation between percentage price drop and dividend yield -- not the commonly assumed linear relation. This prediction and another important prediction of theory are supported empirically. In a variety of tests, marginal price drop is not significantly different from the dividend amount. Thus, over the last several decades, one-for-one marginal price drop has been an excellent (average) rule of thumb.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation