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Ex-Dividend Price Behavior of Common Stocks

John H. Boyd1,2; Ravi Jagannathan1,2

1 University of Minnesota · 2 Federal Reserve Bank of Minneapolis

Review of Financial Studies 1994 open access

This study examines common stock prices around ex-dividend dates. Such price data usually contain a mixture of observations—some with and some without arbitrageurs and/or dividend capturers active. Our theory predicts that such mixing will result in a nonlinear relation between percentage price drop and dividend yield—not the commonly assumed linear relation. This prediction and another important prediction of theory are supported empirically. In a variety of tests, marginal price drop is not significantly different from the dividend amount. Thus, over the last several decades, one-for-one marginal price drop has been an excellent (average) rule of thumb.

DOI
10.1093/rfs/7.4.711
Volume
7 (4)
Pages
711-741
Language
en
Export
BibTeX
Sources
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