Ex-dividend price behavior of common stocks

John H. Boyd and Ravi Jagannathan

No 500, Working Papers 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 a 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: Stocks (search for similar items in EconPapers)
Date: 1994
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http://www.minneapolisfed.org/research/WP/WP500.pdf

Related works:
Journal Article: Ex-dividend Price Behavior of Common Stocks (1994)
Working Paper: Ex-dividend price behavior of common stocks (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:500

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