The Price Impact of the Disposition Effect on the Ex-Dividend Day of NYSE and AMEX Common Stocks

Quantitative Finance, Vol. 14, No. 4, pp. 711-724, 2014

Posted: 15 Mar 2014 Last revised: 22 Mar 2014

See all articles by Vassilis A. Efthymiou

Vassilis A. Efthymiou

Athens University of Economics and Business - Department of Accounting and Finance

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance

Date Written: March 13, 2014

Abstract

We empirically test whether the disposition effect has an asymmetrical impact on the price adjustment on the ex-dividend day of common stocks listed in NYSE and AMEX during the 2001-2008 period. We find that stocks with accrued gains have a greater ex-day price drop ratio (PDR) than stocks with accrued losses. We also find a positive relationship between the PDR and the capital gains overhang that has significant explanatory power over the cross-sectional variability of the PDR. Moreover, the capital gains overhang seems to explain part of the time variation of the PDR for a particular stock that can be a winner or loser at different times. We attribute our results to the disposition effect because active (limited) selling by holders of winning (losing) stocks will most likely accelerate (restrain) the downward price adjustment on the ex-dividend day.

Keywords: Disposition effect; Ex-dividend day; Capital gains overhang; Price drop ratio

JEL Classification: G12, G14, G35

Suggested Citation

Efthymiou, Vassilis A. and Leledakis, George N., The Price Impact of the Disposition Effect on the Ex-Dividend Day of NYSE and AMEX Common Stocks (March 13, 2014). Quantitative Finance, Vol. 14, No. 4, pp. 711-724, 2014, Available at SSRN: https://ssrn.com/abstract=2408485

Vassilis A. Efthymiou (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance ( email )

76 Patission Str.
Athens, 104 34
Greece
+30 210 8203 459 (Phone)
+30 210 8228 816 (Fax)

HOME PAGE: http://www.aueb.gr/en/faculty_page/leledakis-georgios

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