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
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: Suggested Citation