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On December 27, 2016 the Japan ETF DXJR (WisdomTree Japan Hedged Real Estate Fund) closing price was $26.49. The very next day it opened at $14.05! The 28th was also the same day of dividends of $12.68. I've tried looking for news around that time but I can't find anything on this event that came out of nowhere. Why would the price of the stock:

  1. Drop dramatically like that? How can it drop like that without at least some trades being made in between $26 and $14?
  2. Why would this happen the day immediately before dividend day?
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Imagine you have a bank account with $100 in it. You are thinking about selling this bank account, so ask for some bids on what it's worth. You get quotes of around $100.

You decide to sell it, but before you do, you take $50 out of it to have in cash.

Would you expect the market to still pay $100 for the account?

The dividend is effectively the cash being withdrawn. The stock had on account a large amount of cash (which was factored into it's share price), it moved that cash out of it's account (to its shareholders), and as a result the stock instantly becomes priced lower as this cash is no longer part of it, just as it is in the bank account example.

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  • No, I would expect the bid to be $50. Could you please elaborate on what is being taken out of the stock's value? The stock was trading sideways in a straight line, what indicates that "$50 in cash" was taken out? – magnetar Mar 8 '17 at 11:49
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    The dividend is effectively the cash being withdrawn. The stock had on account a large amount of cash (which was factored into it's share price), it moved that cash out of it's account (to its shareholders), and as a result the stock instantly becomes priced lower as this cash is no longer part of it, just as it is in the bank account example. – Philip Mar 8 '17 at 11:53
  • Oh I see, thank you! That makes sense. What is strange is that the past few dividends were about $0.20, and this one that caused the drop was ~$12 – magnetar Mar 8 '17 at 11:59
  • You'd have to dig around the filings to see exactly what caused it - can be a range of things which cause large special dividends to be paid. If this has resolved your question could you please accept the answer as per: meta.stackexchange.com/questions/5234/… – Philip Mar 8 '17 at 12:31
  • I prefer answers to be on the answers, not in the comments below an answer. :-) YMMV – Peter K. Mar 8 '17 at 12:56
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For all stocks, expected Dividends are a part of the price it is traded for - consider that originally, the whole idea of stocks was to participate in the earnings of the company = get dividends.

The day the dividend is paid, that expectation is of course removed, and thereby the stock value reduced by just the amount of dividend paid. You will see that behavior for all stocks, everywhere. The dividend in your example is just uncommonly high relative to the stock price; but that is a company decision - they can decide whatever amount they want as a dividend.

In other words, the day before dividend payments, investors value the stock at ~14 $, plus an expected dividend payment of 12 $, which adds to 26 $. The day after the dividend payment, investors still value the stock at ~14 $, plus no more dividend payment = 0 $. Nothing changed really in the valuation.

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