Time‐Series Variation in Dividend Pricing

Eades, Kenneth M.; Hess, Patrick J.; Kim, E. Han

doi:10.1111/j.1540-6261.1994.tb04775.x

Cited by 57 publications

(22 citation statements)

References 35 publications

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“…Figure 1 charts the drop‐off ratios of high‐ and low‐yield samples for each of the fiscal years April 6, 1985 to April 5, 1994. As in Eades, Hess, and Kim (1994) the high‐yield sample consists of the highest dividend‐yield quintile, and the low‐yield sample contains the three lowest dividend‐yield quintiles, excluding the fourth yield quintile, to draw a clear distinction between the samples. In line with Eades, Hess, and Kim (1994), ex‐day drop off ratios vary over time.…”

Section: Resultsmentioning

confidence: 99%

“…As in Eades, Hess, and Kim (1994) the high‐yield sample consists of the highest dividend‐yield quintile, and the low‐yield sample contains the three lowest dividend‐yield quintiles, excluding the fourth yield quintile, to draw a clear distinction between the samples. In line with Eades, Hess, and Kim (1994), ex‐day drop off ratios vary over time. However, despite their fluctuations, the pre‐1988 drop‐off ratios are clearly lower than those of the post‐1988.…”

Section: Resultsmentioning

confidence: 99%

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Ex‐Day Behavior: Tax or Short‐Term Trading Effects

Lasfer

1995

The Journal of Finance

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This study examines the behavior of share prices around the ex‐dividend dates before and after the introduction of the 1988 Income and Corporation Taxes Act that reduced substantially the tax differential between dividends and capital gains in the United Kingdom. We find that, in the pre‐1988 period when the differential taxation of dividends and capital gains is high, ex‐day returns are positive and significant. In contrast, in the post‐1988 period, ex‐day returns are, in most cases, negative and insignificant. Further analysis reveals that, while ex‐day returns are significantly related to dividend yield and to the length of the settlement period, they are not affected by the commonly used measures of transaction costs, such as the bid‐ask spread and trading volume, or by the day of week, month of the year, type of dividend distribution, or number of days to the actual receipt of the cash dividend. We conclude that taxation affects significantly ex‐day share prices in the United Kingdom.

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%

Ex‐Day Behavior: Tax or Short‐Term Trading Effects

Lasfer

1995

The Journal of Finance

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“…If driven by short‐term trading, the ex‐day premium may be affected by factors such as transaction costs (Karpoff and Walkling 1988, 1990), and risks of dividend capture (Grammatikos 1989; Fedenia and Grammatikos 1993). Support of the short‐term trading argument is provided by Eades et al (1994) 5 and also by Lakonishok and Vermaelen (1986) who provide evidence of abnormal ex‐day volume for US companies.…”

Section: Theory and Empirical Hypothesesmentioning

confidence: 96%

Price and Volume Behavior around the Ex‐dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks^*

et al. 2008

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Australian residents are tax-advantaged, relative to American investors, in their access to imputation tax credits on Australian stocks. This paper provides evidence consistent with a difference in dividend valuations between Australian stocks and their American Depositary Receipts (ADRs). The ex-dividend drop-off ratio is lower for ADRs relative to their underlying Australian stocks and this difference is most pronounced for stocks that have imputation tax credits and high dividend yields. Consistent with dividend capture trading in the Australian market, the difference in drop-off ratios is driven by both temporarily higher Australian cum-prices and temporarily lower Australian ex-prices. Abnormal trading volume about the ex-day is present in both markets and in the Australian market the abnormal volume is greater for dividends with imputation tax credits. Dividend-related trading leads to price differences across the markets on the ex-dividend day. Price differences are also observed when the stock and the ADR trade with different dividend entitlements due to different ex-dividend dates.

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“…14 14We have also considered average ex‐dividend day returns as a fifth measure of investor demand. Ex‐day returns do vary over time (e.g., Eades, Hess, and Kim (1994)). However, they have less of a category‐switching interpretation than our other four measures: A dividend payer seems likely to be viewed as a payer before, during, and after the ex‐day. …”

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confidence: 99%

A Catering Theory of Dividends

Baker¹,

Wurgler²

2004

The Journal of Finance

1,015

345

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We develop a theory in which the decision to pay dividends is driven by investor demand. Managers cater to investors by paying dividends when investors put a stock price premium on payers and not paying when investors prefer nonpayers. To test this prediction, we construct four time series measures of the investor demand for dividend payers. By each measure, nonpayers initiate dividends when demand for payers is high. By some measures, payers omit dividends when demand is low. Further analysis confirms that the results are better explained by the catering theory than other theories of dividends. * We would like to thank Viral Acharya, Raj Aggarwal, Katharine Baker, Randy Cohen, Gene D'Avolio, Steve A Catering Theory of Dividends AbstractWe develop a theory in which the decision to pay dividends is driven by investor demand. Managers cater to investors by paying dividends when investors put a stock price premium on payers and not paying when investors prefer nonpayers. To test this prediction, we construct four time series measures of the investor demand for dividend payers. By each measure, nonpayers initiate dividends when demand for payers is high. By some measures, payers omit dividends when demand is low. Further analysis confirms that the results are better explained by the catering theory than other theories of dividends.

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Time‐Series Variation in Dividend Pricing

Cited by 57 publications

References 35 publications

Ex‐Day Behavior: Tax or Short‐Term Trading Effects

Ex‐Day Behavior: Tax or Short‐Term Trading Effects

Price and Volume Behavior around the Ex‐dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks^*

A Catering Theory of Dividends

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Time‐Series Variation in Dividend Pricing

Cited by 57 publications

References 35 publications

Ex‐Day Behavior: Tax or Short‐Term Trading Effects

Ex‐Day Behavior: Tax or Short‐Term Trading Effects

Price and Volume Behavior around the Ex‐dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks*

A Catering Theory of Dividends

Contact Info

Product

Resources

About

Price and Volume Behavior around the Ex‐dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks^*