Price Pressure from Dividend Reinvestment Activity: Evidence from Closed-End Funds

Blouin, Jennifer; Cloyd, C. Bryan

doi:10.2139/ssrn.676632

Price Pressure from Dividend Reinvestment Activity: Evidence from Closed-End Funds

40 Pages Posted: 9 Mar 2005

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

C. Bryan Cloyd

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems

Date Written: February 28, 2005

Abstract

We test the price pressure hypothesis using a novel setting: open-market purchases of shares in closed-end mutual funds by dividend reinvestment plans (DRIP). Abnormal volume, returns and intraday data around dividend payment dates provide evidence consistent with upward price pressure created as DRIP agents reinvest dividends in fund shares. Our results suggest that excess demand curves for closed-end fund shares are downward sloping and that DRIP agents could improve shareholder returns by changing the timing and/or size of their buy orders related to the DRIP's needs.

Keywords: Price pressure, dividend reinvestment plans, closed-end mutual funds

JEL Classification: G12, G14, G23

Suggested Citation: Suggested Citation

Blouin, Jennifer and Cloyd, C. Bryan, Price Pressure from Dividend Reinvestment Activity: Evidence from Closed-End Funds (February 28, 2005). Available at SSRN: https://ssrn.com/abstract=676632 or http://dx.doi.org/10.2139/ssrn.676632