The Chilean ex-dividend day

Augusto Castillo, Keith Jakob

Research output: Contribution to journalArticlepeer-review

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 languageEnglish
Pages (from-to)105-118
Number of pages14
JournalGlobal Finance Journal
Volume17
Issue number1
DOIs
StatePublished - Sep 2006

Keywords

  • Chile
  • Ex-dividend day price drop
  • NYSE Rule 118

Fingerprint

Dive into the research topics of 'The Chilean ex-dividend day'. Together they form a unique fingerprint.

Cite this