Dividend drop offs, market microstructures and marginal investors

Kazakoff, Andrew J. (2001). Dividend drop offs, market microstructures and marginal investors Honours Thesis, School of Business, The University of Queensland.

       
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Author Kazakoff, Andrew J.
Thesis Title Dividend drop offs, market microstructures and marginal investors
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2001
Thesis type Honours Thesis
Total pages 108
Language eng
Subjects 1503 Business and Management
Formatted abstract The behaviour of stock prices around ex-dividend dates has long been a source of academic and commercial interest. In frictionless markets, stock prices should fall at the ex dividend instant in direct proportion to the amount of the dividend paid, however, in most capital markets a stock price decline less than the amount of the dividend is observed. While this phenomenon is well documented, the reasons for it are not. The extant literature has identified two competing hypotheses to account for the ex day price behaviour of dividend paying stocks; the short term trading hypothesis and the tax differential hypothesis. Which of these competing explanations is best able to account for ex dividend stock price behaviour is a contentious issue, with prior examinations of this issue yielding conflicting evidence. This thesis, using a unique Australian data set, distinguishes between these competing hypotheses. Statistically significant abnormal trading volume is reported in both cum and ex dividend trading, il1dicating that short term investors actively trade around dividend events. An analysis of the bid ask spread reveals that buyer initiated trades dominate the order the book in both tile cum and ex dividend trading period, consistent with short term traders being the marginal investor in dividend paying securities around dividend events.

 
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