Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes

Murray Frank () and Ravi Jagannathan

No 229, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: It is well documented that on average, stock prices drop by less than the value of the dividend on ex-dividend days. This has commonly been attributed to the effect of tax clienteles. We use data from the Hong Kong stock market where neither dividends nor capital gains are taxed. As in the U.S.A. the average stock price drop is less than the value of the dividend; specifically, in Hong Kong the average dividend was HK $0.12 and the average price drop was HK $0.06. We are able to account for this both theoretically and empirically through market microstructure based arguments.

Keywords: Dividends; Stock - Prices (search for similar items in EconPapers)
Date: Written
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Journal Article: Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes (1998)
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