Ex-Dividend Day Behaviour in the Absence of Taxes and Price Discreteness

International Review of Finance, Vol. 8, pp. 103-123

Second Singapore International Conference on Finance 2008

Posted: 15 Feb 2008 Last revised: 19 Jul 2010

See all articles by Khamis Al-Yahyaee

Khamis Al-Yahyaee

Sultan Qaboos University; Economic Research Forum

Toan M. Pham

UNSW Australia Business School, School of Banking and Finance

Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

Date Written: November 1, 2008

Abstract

We examine the ex-dividend day behaviour in a unique setting where (1) there are neither taxes on dividends nor on capital gains, (2) stock prices have been decimalized, (3) dividends are distributed annually, and (4) we have data that enable us to examine bid-ask bounce effects. In this economy, any price decline that is smaller than the dividends can not be attributed to taxes and price discreteness. Like previous studies, we find that the stock price drops by less than the amount of dividends and there is a significant positive ex-day return. By examining abnormal volumes around the ex-dividend day, we find no evidence of short-term trading. We are able to account for our results using market microstructure models. When the impact of market microstructure is taken into account, the ex-dividend drop is not significantly different to the value of the dividend paid.

Keywords: dividends, bid-ask spread, tax effects, market microstructure, tick size

JEL Classification: G35

Suggested Citation

Al-Yahyaee, Khamis and Pham, Toan M. and Walter, Terry Stirling, Ex-Dividend Day Behaviour in the Absence of Taxes and Price Discreteness (November 1, 2008). International Review of Finance, Vol. 8, pp. 103-123, Second Singapore International Conference on Finance 2008, Available at SSRN: https://ssrn.com/abstract=1008130

Khamis Al-Yahyaee (Contact Author)

Sultan Qaboos University ( email )

P.O.Box 20
Al Khoudh, Muscat, 123
Oman
+(968)24141833 (Phone)
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Economic Research Forum ( email )

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(P.O. Box: 12311)
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Toan M. Pham

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+61 2 9385-5869 (Phone)
+61 2 9385-6347 (Fax)

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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