Timeline for Do share prices on average drop by the whole dividend?
Current License: CC BY-SA 4.0
19 events
| when toggle format | what | by | license | comment | |
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| Jan 10, 2020 at 15:45 | comment | added | JimmyJames | @nanoman I like your answer there. I think the answer is right in the FINRA notice: "Additionally, the fact that some members might, and others might not, adjust open orders on ex-dates creates confusion for customers" It's a protection for investors. If you weren't paying attention and left your order open at the higher price, it would create a huge arbitration opportunity at the cost of the unwitting. | |
| Jan 10, 2020 at 15:14 | comment | added | Bob Baerker | FINRA Rule 5330 applies to the adjustment of open orders that exist on the ex-dividend date. Due to share price reduction by the exchanges on the ex-dividend date (cash dividends), unless they are marked "Do Not Reduce," open order prices shall be first reduced by the dollar amount of the dividend, and the resulting price will then be rounded down to the next lower minimum quotation variation." | |
| Jan 10, 2020 at 14:30 | history | edited | Matthias | CC BY-SA 4.0 |
added 255 characters in body
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| Jan 10, 2020 at 14:29 | vote | accept | Matthias | ||
| Jan 10, 2020 at 14:22 | comment | added | Matthias | @JimmyJames I added the tags and a bit of an explanation. | |
| Jan 10, 2020 at 14:21 | history | edited | Matthias | CC BY-SA 4.0 |
Country tags and context
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| Jan 10, 2020 at 14:19 | comment | added | Matthias | @nanoman I live in Singapore. No capital gains tax. But I still face 30% US dividend withholding tax on US assets. | |
| Jan 9, 2020 at 23:31 | comment | added | nanoman | "I want to get capital gains, but not dividends" -- the US tax treatment is fairly symmetric, with dividends on long-term stock holdings taxed at the same rates as long-term capital gains, and dividends on short-term stock holdings taxed as ordinary income like short-term capital gains. | |
| Jan 9, 2020 at 23:26 | comment | added | nanoman | @JimmyJames I argued here that such open GTC orders play a minor role in short-term price discovery. And I interpret these questions as being about overnight dividend impact on actual trade prices rather than on quote calculations. | |
| Jan 9, 2020 at 20:17 | comment | added | JimmyJames | @BobBaerker That's a rule that the NASD (now known as FINRA) implemented in 1994: "In the absence of an NASD rule governing open orders, members adjust open orders according to their own procedures, ... These procedures can vary from automatic adjustment, automatic withdrawal, reconfirmation of the order with the customer, or no action. .... As a result, investors may find that their open orders are executed without adjustment on or after the ex-date at a higher cost per share than they intended based on their valuation of the security." | |
| Jan 9, 2020 at 19:29 | comment | added | JimmyJames | It's a little difficult to answer this in general since tax laws vary so much by country. For example, in the US, most taxpayers pay the same rate for dividend income as they do for long-term capital gains. Could you add a country tag? | |
| Jan 9, 2020 at 19:26 | answer | added | JimmyJames | timeline score: 1 | |
| Jan 9, 2020 at 6:24 | history | edited | Matthias | CC BY-SA 4.0 |
Explain that I know about arbitrage
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| Jan 7, 2020 at 5:28 | comment | added | Bob Baerker | @nanoman - Go to answer? Do you believe that share price isn't reduced by the amount of the dividend on the ex-div date? | |
| Jan 5, 2020 at 0:45 | comment | added | nanoman | 1. Waiting for Bob Baerker to post his go-to answer claiming that the stock exchanges enforce a price drop equal to the dividend. 2. Note that when you get down to fine details, measuring from last cum-dividend close to first ex-dividend close, one day's normal stock return can be significant. An average ~10% annual return is ~0.04% per trading day. The market's dividend yield is ~2%, so a typical quarterly dividend is ~0.5%. This explanation alone would suggest an average drop of ~90% of the dividend (say 0.46% instead of 0.5%) on ex-dividend day. | |
| Jan 4, 2020 at 17:28 | answer | added | pcalc | timeline score: 2 | |
| Jan 4, 2020 at 17:21 | answer | added | steviekm3 | timeline score: -1 | |
| Jan 4, 2020 at 14:45 | review | First posts | |||
| Jan 4, 2020 at 20:39 | |||||
| Jan 4, 2020 at 14:43 | history | asked | Matthias | CC BY-SA 4.0 |