TY - JOUR
T1 - The Chilean ex-dividend day
AU - Castillo, Augusto
AU - Jakob, Keith
N1 - Funding Information:
The authors thank the helpful comments of Eugenio Camacho. The authors also would like to thank Gregory Crawford for his valuable database assistance. Professor Jakob would like to thank Ron and Judy Paige, and the University of Montana's Office of International Programs for additional funding in support of this project. The authors are responsible for any errors or omissions.
PY - 2006/9
Y1 - 2006/9
N2 - In a perfect capital market ex-dividend day share prices should fall by exactly the amount of the dividend. However, empirical evidence shows that stock prices drop by less than the dividend amount. The most popular explanations for this anomaly are tax or market microstructure related. We examine ex-dividend day behavior of stocks on the main Chilean exchange. We find an average price drop to dividend ratio of 0.815. Given the absence of good market microstructure arguments for the Chilean case, we explore if the tax clientele theory has support. The tax story indicates that higher dividend yields should produce price drop to dividend ratios closer to one, but we find no relation between dividend yield and this ratio. The evidence suggests that arbitrageur transactions costs may be the friction that restricts ex-day price adjustment in Chile.
AB - In a perfect capital market ex-dividend day share prices should fall by exactly the amount of the dividend. However, empirical evidence shows that stock prices drop by less than the dividend amount. The most popular explanations for this anomaly are tax or market microstructure related. We examine ex-dividend day behavior of stocks on the main Chilean exchange. We find an average price drop to dividend ratio of 0.815. Given the absence of good market microstructure arguments for the Chilean case, we explore if the tax clientele theory has support. The tax story indicates that higher dividend yields should produce price drop to dividend ratios closer to one, but we find no relation between dividend yield and this ratio. The evidence suggests that arbitrageur transactions costs may be the friction that restricts ex-day price adjustment in Chile.
KW - Chile
KW - Ex-dividend day price drop
KW - NYSE Rule 118
UR - http://www.scopus.com/inward/record.url?scp=33747769570&partnerID=8YFLogxK
U2 - 10.1016/j.gfj.2006.06.002
DO - 10.1016/j.gfj.2006.06.002
M3 - Article
AN - SCOPUS:33747769570
SN - 1044-0283
VL - 17
SP - 105
EP - 118
JO - Global Finance Journal
JF - Global Finance Journal
IS - 1
ER -