Dividend capturing on ex- dividend day: A scenario of Pakistan.

Abstract

This paper has examined dividend-capturing activities and short-term trading of stocks listed on the Pakistan Stock Exchange. For this, a time span of twenty years (2001–2020) for PSX-listed stocks has been selected. Standard event study methodology and regression have been used to analyze the presence of arbitrageurs to capture dividend benefits around ex-dividend day. The abnormal returns of stocks are estimated with the help of a market model. The impact of various exogenous factors is checked through regression. The result of this study confirmed the existence of short-term trading and found evident empirical support for explaining dividend-capturing activities. Positive abnormal returns are recorded before event day, and negative abnormal returns are recorded thereafter. Finally, results from regression revealed that dividend yield and risk are significant and verifiable explanations of stock prices fluctuation on ex-dividend day.