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Ex-dividend day price behavior and liquidity in a tax-free emerging market

Daniel Dupuis

Emerging Markets Review, 2019, vol. 38, issue C, 239-250

Abstract: This paper investigates the effect of liquidity on the ex-dividend day price premium. It is well documented that prices drop less than the dividend amount on the ex-day; this market inefficiency is generally attributed to the tax-induced clientele effect and various structural frictions. We show that, even in a tax-free market characterized by the presence of large block holders and the absence of the usual microstructure impediments, abnormal returns persist. Using a newly defined free-float adjusted measure of market fluidity, we find that liquidity is economically and statistically significant in the determination of the ex-dividend day price anomaly, indicating that trading restrictions can partially explain the ex-dividend return puzzle.

Keywords: Abnormal return; Dividends; Microstructure; Emerging markets; Liquidity; Mispricing (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G35 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:ememar:v:38:y:2019:i:c:p:239-250