Abstract
This study documents that individual investors increase buy-initiated trades prior to ex-dividend days and increase sell-initiated trades after the ex-day. Institutions supply liquidity to individual investors by increasing their use of sell limit orders in the cum-dividend period and increasing their usage of buy limit orders in the ex-dividend period. Stocks that experience higher net purchases from individual investors operating through discount brokers in the cum-dividend period have lower ex-day returns in the order of 25 basis points. This difference is as large as 44 basis points for high yield securities. This contrasts with the average excess ex-day return of 24 basis points. The results indicate that individual investors play an influential role in ex-dividend pricing.
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