An analysis of ex-dividend day abnormal trading volumes and share price changes in the Australian equity market

Bellamy, David Ewan. (2002). An analysis of ex-dividend day abnormal trading volumes and share price changes in the Australian equity market PhD Thesis, School of Business, The University of Queensland.

       
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Author Bellamy, David Ewan.
Thesis Title An analysis of ex-dividend day abnormal trading volumes and share price changes in the Australian equity market
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2002
Thesis type PhD Thesis
Supervisor Finn, F. J.
Total pages 244
Collection year 2002
Language eng
Subjects L
350301 Finance
710401 Finance and investment services
Formatted abstract This study examines share trading around the ex-dividend day of stocks traded in the Australian equity market. The study documents abnormal trading volumes in both the cum-dividend and ex-dividend periods, and share price changes that are related to transactions costs and dividend yield.

A number of previous studies of ex-dividend day share trading have reached inconclusive or ambiguous results. An understanding of the motivation for share trading around the ex-dividend day is important as it provides valuable information that can be used in the estimation of cost of capital and capital budgeting decisions. A finding of abnormal trading volume around the ex-dividend day will conclusively eliminate theoretical models based on tax clienteles.

This study uses a sample of 4580 unfranked and fully franked ex-dividend events for Australian company ordinary shares in the period March 1995 to December 2001. The event study methodology is used to estimate abnormal trading volumes and share price changes around the ex-dividend day. A trading model based on a costly-arbitrage framework is developed to examine the ex-dividend trading motivation of various groups of investors. Detailed analysis of fully franked dividends is undertaken in terms of a number of transactions cost proxies and share dividend yields. The analysis is performed using both partitioned samples and multivariate analysis. The effect of the introduction of the 45-day trading rule restriction on trading volumes and share price drop-off is examined and interpreted in terms of its effect on the market valuation of imputation tax credits.

The study finds conclusive evidence in support of both long-term traders accelerating intended trades into the cum-dividend period from the ex-dividend period, and short-term (arbitrage) trading around the ex-dividend day for stocks paying fully franked dividends. Long-term traders are found to be largely insensitive to transactions costs concentrating their trades in higher dividend yield stocks. Short-term traders are found to be sensitive to transactions costs, particularly to bid-ask spread, and concentrate their trades in lower transactions-costs higher dividend yield stocks. Analyses of the effect of the introduction of the 45-day trading rule restriction indicates reduced levels of abnormal trading in the stocks most likely to be the target of imputation tax credit trading and a reduction in ex-dividend day price drop-off in the period after the tax rule change. This is interpreted as a decrease in arbitrage trading and is indicative of a lower market value for imputation tax credits.
Keyword Stock exchanges.
Additional Notes Variant title : Ex-dividend trading in the Australian equity market.

 
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Created: Fri, 24 Aug 2007, 17:55:03 EST