Are ex-day dividend clientele effects dead? Dividend yield versus dividend size

Keith J. Jakob, Tongshu Ma

Research output: Contribution to journalArticlepeer-review

Abstract

We devise an approach to determine whether market microstructure or taxes influence ex-dividend behavior. We find that microstructure effects of automated limit order adjustments strongly influence ex-day prices for dividends less than or equal to a tick. For these dividends, after controlling for dividend size, we find no relation between price-drop-to-dividend ratio and dividend yield. For larger dividends, both microstructure and tax effects are found: Consistent with the microstructure story we find that between ticks, as dividend sizes increase (hence dividend yields increase), price-drop-to-dividend ratios decrease. However, consistent with the tax clientele hypothesis, when dividend size is fixed, a positive relation between price-drop-to-dividend ratio and yield is still seen.

Original languageEnglish
Pages (from-to)718-735
Number of pages18
JournalJournal of Empirical Finance
Volume14
Issue number5
DOIs
StatePublished - Dec 2007

Keywords

  • Ex-dividend day price drop
  • NYSE Rule 118
  • Tax clienteles

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