Abstract
We differentiate among some of the contending hypotheses about ex- dividend day pricing by studying share price behavior in Canadian markets around the ex-dividend day during the period 1977-2000. Over this time, the tax regime switched from favoring capital gains to favoring dividends, and in 1996 exchanges decimalized and reduced minimum tick sizes. We rule out both tax and tick-size effects on ex-day behavior. In other words, no support is found for tax-induced pricing and therefore consequently dividend clienteles or for the Bali and Hite (1998) pricing model. We find some evidence that short-term trading may be a factor in the ex-dividend day price behavior. (An earlier version of the paper was presented at the Northern Finance Association Meetings 2001, Halifax and the Financial Management Associations Meetings, 2002, San Antonio, Texas. We thank Rakesh Bali, Ravi Jagannathan and Raymond Kan for their helpful comments.)
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