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Ex-dividend price behavior of common stocks

John H. Boyd and Ravi Jagannathan

No 173, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This study examines common stock prices around ex-dividend dates. Such price data usually contain a mixture of observations?some with and some without arbitrageurs and/or dividend capturers active. Our theory predicts that such mixing will result in some nonlinear relation between percentage price drop and dividend yield?not the commonly assumed linear relation. This prediction and another important prediction of theory are supported empirically. In a variety of tests, marginal price drop is not significantly different from the dividend amount. Thus, over the last several decades, one-for-one marginal price drop has been an excellent (average) rule of thumb.

Keywords: Dividends; Stock - Prices (search for similar items in EconPapers)
Date: 1994
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Journal Article: Ex-dividend Price Behavior of Common Stocks (1994) Downloads
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