The Ex-Dividend Day Stock Price Behavior: The Case of Portugal
JOURNAL
YEAR
Sep 21, 2008
TYPE
Articles in journals
AUTHORS
Borges, R.
VOL Nº
36
PAGES
15
ABSTRACT
This paper examines the ex-dividend day behavior of stock prices in the Lisbon Stock Market over the period 1990-1998, extendinginternational evidence and discussing the adequacy of competing theories, considering the Portuguese institutional environment. We find that on the ex-day stock prices fall by less than the dividend, which is in line with the findings of several studies based on US and non-US data. The main contributions of this paper are: (i) the rejection of a tax explanation for the stock price drop, because it is inconsistent with the Portuguese tax regime; (ii) considering the very small stock price tick and the fact that dividends are always integer multiples of tick size, the discreteness hypothesis of Bali and Hite [1998] is also ruled out as a possible explanation for ex-day price movements. We find no evidence of tax related clientele effects. We propose that ex-day price behavior may be an anomaly, reflecting a less than efficient market with low liquidity levels, price stickiness, and insipid arbitrage trading.
JEL CLASS
KEYWORDS
Ex-dividend day,Tax clientele,Tick price,Stock price drop