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Intraday analysis of the limit order bias at the ex-dividend day of U.S. common stocks

Vassilis Efthymiou and George Leledakis

MPRA Paper from University Library of Munich, Germany

Abstract: This study places Dubofsky’s (1992) “limit order adjustment hypothesis” under the microscope of an intraday analysis, which employs a minute-by-minute trade and quote data recorded during the ex-dividend days of common stocks listed on NYSE, AMEX and NASDAQ. Dufosky’s (1992) model concluded that the asymmetric adjustment of open limit orders for cash dividend payments under the NYSE and AMEX rules is sufficient to create abnormal returns on the ex-dividend day. Empirical evidence shows that the limit order bias incurred due to the asymmetric adjustment of open limit orders seems to dominate the overnight ex-day returns but at the same time, it is significantly corrected via active trading up until the close of the ex- dividend day. As a result, the significant association of the ex-day price drop discrepancy with the opening limit order bias eventually disappears before the ex-dividend day close. Finally, it is found that the reversal of the limit order bias is in fact quicker in stocks which are more liquid or listed on NASDAQ where strong competition among dealers is envisaged to drive stale quotes closer to the fair adjustment of the dividend.

Keywords: Ex-dividend day; intraday price drop ratio; order flow bias (search for similar items in EconPapers)
JEL-codes: G14 G35 G39 (search for similar items in EconPapers)
Date: 2013-09-12
New Economics Papers: this item is included in nep-fmk and nep-mst
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Journal Article: Intraday analysis of the limit order bias on the ex-dividend day of U.S. common stocks (2021) Downloads
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