Ex-Day Returns of Stock Distributions: An Anchoring Explanation

Eric C. Chang (), Tse-Chun Lin, Yan Luo () and Jinjuan Ren ()
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Eric C. Chang: Faculty of Business and Economics, University of Hong Kong, Hong Kong, China
Yan Luo: School of Management, Fudan University, 200433 Shanghai, People’s Republic of China

Management Science, 2019, vol. 65, issue 3, 1076-1095

Abstract: We offer a new anchoring explanation for the ex-day abnormal returns of stock distributions, including stock dividend distributions, splits, and reverse splits. We propose that investors tend to anchor on cum-day prices in valuating ex-distribution stocks, resulting in a positive association between ex-day returns and adjustment factors. We find that this positive return-factor relation exists for all three types of stock distributions and in both the pre- and post-decimalization periods. Furthermore, we find that this positive return-factor relation is more pronounced among events that are more subject to investors’ anchoring propensity, featured by less investor attention, greater arbitrage difficulty, greater valuation uncertainty, less investor sophistication, and higher market sentiment. Last, using brokerage account data, we show that stocks that are traded by investors with more investment experience demonstrate a weaker return-factor relation.

Keywords: economics; behavior and behavioral decision making; finance; asset pricing; anchoring; splits; stock dividends (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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