The ‘Ex-Dividend Day’ Anomaly Under a Behavioral Dividend Clientele View: Evidence From China

Abstract

We propose a behavioral dividend clientele view to explain a unique “ex-dividend day” anomaly on the Chinese stock market. In particular, we find that on the ex-dividend day, the average CAPM-adjusted stock return is significantly below zero and the average trading volume significantly shrinks, which are different from the theoretical predictions and existing findings drawn from other stock markets. Such patterns tend to be driven by small retail investors who are net buyers of dividend paying stocks prior to the ex-dividend day and switch to net sellers of on and after the ex-dividend day. Furthermore, we find “dividend price”, the negative deviations of ex-dividend day stock return from zero, is positively associated with dividend yields and the idiosyncratic risks of the underlying stocks. These findings suggest that investors with strong non-monetary and psychologically driven dividend preferences can result in a unique “ex-dividend day” anomaly.