Tick size, NYSE rule 118, and ex-dividend day stock price behavior

Keith Jakob, Tongshu Ma

Research output: Contribution to journalArticlepeer-review

Abstract

Bali and Hite (1998) and Dubofsky (1992) propose models in which market microstructure effects play a role in the ex-dividend day price drop anomaly. Bali and Hite suggest that the anomaly is caused solely by price discreteness, while Dubofsky suggests that NYSE Rule 118 is also involved. We test these models by examining cum- to ex-day price drops during the one-eighth, one-sixteenth, and decimal tick size regimes. While the evidence is qualitatively consistent with Dubofsky's predictions, neither model is satisfactory in a quantitative sense. One of our main empirical findings is that no significant decline was evident in the magnitude of the ex-day anomaly after the tick size reduction.

Original languageEnglish
Pages (from-to)605-625
Number of pages21
JournalJournal of Financial Economics
Volume72
Issue number3
DOIs
StatePublished - Jun 2004

Keywords

  • Ex-dividend day price drop
  • NYSE Rule 118
  • Tick size

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