The Chilean ex-dividend day

Augusto Castillo; Keith Jakob

doi:10.1016/j.gfj.2006.06.002

The Chilean ex-dividend day

Augusto Castillo, Keith Jakob

Accounting and Finance

Pontificia Universidad Católica de Chile

Research output: Contribution to journal › Article › peer-review

9 Scopus citations

Abstract

In a perfect capital market ex-dividend day share prices should fall by exactly the amount of the dividend. However, empirical evidence shows that stock prices drop by less than the dividend amount. The most popular explanations for this anomaly are tax or market microstructure related. We examine ex-dividend day behavior of stocks on the main Chilean exchange. We find an average price drop to dividend ratio of 0.815. Given the absence of good market microstructure arguments for the Chilean case, we explore if the tax clientele theory has support. The tax story indicates that higher dividend yields should produce price drop to dividend ratios closer to one, but we find no relation between dividend yield and this ratio. The evidence suggests that arbitrageur transactions costs may be the friction that restricts ex-day price adjustment in Chile.

Original language	English
Pages (from-to)	105-118
Number of pages	14
Journal	Global Finance Journal
Volume	17
Issue number	1
DOIs	https://doi.org/10.1016/j.gfj.2006.06.002
State	Published - Sep 2006

Keywords

Chile
Ex-dividend day price drop
NYSE Rule 118

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10.1016/j.gfj.2006.06.002

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title = "The Chilean ex-dividend day",

abstract = "In a perfect capital market ex-dividend day share prices should fall by exactly the amount of the dividend. However, empirical evidence shows that stock prices drop by less than the dividend amount. The most popular explanations for this anomaly are tax or market microstructure related. We examine ex-dividend day behavior of stocks on the main Chilean exchange. We find an average price drop to dividend ratio of 0.815. Given the absence of good market microstructure arguments for the Chilean case, we explore if the tax clientele theory has support. The tax story indicates that higher dividend yields should produce price drop to dividend ratios closer to one, but we find no relation between dividend yield and this ratio. The evidence suggests that arbitrageur transactions costs may be the friction that restricts ex-day price adjustment in Chile.",

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note = "Funding Information: The authors thank the helpful comments of Eugenio Camacho. The authors also would like to thank Gregory Crawford for his valuable database assistance. Professor Jakob would like to thank Ron and Judy Paige, and the University of Montana's Office of International Programs for additional funding in support of this project. The authors are responsible for any errors or omissions.",

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The Chilean ex-dividend day

Abstract

Keywords

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