Timeline for Do share prices on average drop by the whole dividend?
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| Jan 13, 2020 at 18:22 | comment | added | JimmyJames | "Also the 'dividend yield' is not the 'dividend amount'" Actually, this is irrelevant. The yield is the percentage. Trying to parse what this really means got my brain twisted up. I think they are saying that the slope of the regression is close to one. But if you look at Table 3, you can see that the R-squared is quite low, suggesting this is not a good predictor. When they bin these into classes, they get a much better model. I think this aligns with the section "A Nonlinear Relation?" (page 20) which notes that high and low yield stocks deviate from the straight-line relationship. | |
| Jan 13, 2020 at 18:06 | comment | added | JimmyJames | @pcalc On page 18 it says: ".. in our data the average price drop is about 77 percent of the amount of the average dividend." Pretty clear. The section you are referring to states that "at the margin, percentage price drop is almost exactly equal to dividend yield". By 'at the margin' I think they mean the 'maximum' price drop. This is followed up with "On average, however, ex-dividend percentage price drop moves almost exactly one-for-one with dividend yield". The word 'however' suggests that 'exact' and 'one-for-one' are distinct. Also the 'dividend yield' is not the 'dividend amount'. | |
| Jan 12, 2020 at 10:49 | comment | added | pcalc | In §6 they conclude: "In reviewing all of our results, it is striking (...) price drop is almost exactly equal to dividend yield." And "On average, however, ex-dividend percentage price drop moves almost exactly one-for-one with dividend yield. (...) our results suggest that one-for-one marginal price drop has been a good rule of thumb, at least on average, over the last two and one-half decades". Indeed, they mention that there was one significant exception which was excluded (which you may refer to?). However, the conclusion is that they didn't observe a significant difference at all. | |
| Jan 9, 2020 at 21:22 | comment | added | JimmyJames | I'm skimming the 1993 paper and I'm not seeing where they claim there's no significant difference. What I see is "... the average ex-dividend price drop was $0.196. The average dividend was $0.256 per share." That's a 24.4% difference. Am I missing something? | |
| Jan 9, 2020 at 19:57 | comment | added | JimmyJames | "since in an effective market some market actors will take advantage of and therefore the gap will close" Could this be explained by tax policy? People who own large positions in a company are likely to be subject to income tax on dividends. Therefore, might they time sales to be prior to the ex-dividend date as part of a tax optimization strategy and put negative pressure on the dividend declaration price anomaly. | |
| Jan 9, 2020 at 6:39 | comment | added | Matthias | @BobBaerker Yes, I know about the automatic reduction of open orders. It's not the point of the question, though. | |
| Jan 9, 2020 at 6:23 | comment | added | Matthias | My strategy would be the opposite of dividend stripping: I want to be in the market at all times apart from when there's dividends. I want to get capital gains, but not dividends. My question boils down to: for eg VT do existing arbitragers close the whole gap, or only eg 85% of the gap, because of withholding taxes? (Ie do we have withholding tax-exempt arbitragers.) Edited the question. | |
| Jan 7, 2020 at 5:35 | comment | added | Bob Baerker | On the ex-div date, share price is reduced by the exact amount of the dividend. That occurs before the stock/ETF resumes trading on the ex-div date. How much a stock drops that DAY is a different story. | |
| Jan 4, 2020 at 17:28 | history | answered | pcalc | CC BY-SA 4.0 |