Ex-Dividend Price Behavior of Common Stocks

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Creator Series Issue number
  • 500
Date Created
  • 1994-03
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.

Related information Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
Publisher
  • Federal Reserve Bank of Minneapolis
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