Ex-dividend Dates Research Articles

Dividend Policy as a Moderating of the Effect of Dividend Announcement on Stock Price in Indonesian Firms

This goal of this study is to investigate how dividend announcements affect the stock price of the company on the cum and ex-dividend dates. This study also explores the possibility of dividend policy reduce the effect of dividend announcements on stock prices on the cum and ex-dividend dates. The researcher used the unit analysis of manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the period of 2013 - 2018. The 2019 - 2021 period is not observed due to the present of Covid Pandemic. The findings are that the dividend announcements at cum and ex-dividend dates have positive impact on stock prices. Dividend policy weakens the impact of dividend announcements on stock prices at cum and ex-dividend dates. The dividend announcement at cum and ex-dividend dates varies across companies. This study does not use the event study method. This study has a significant implication, not only for business officials and policy makers but also for investors who directly decide how to plan their portfolio in the future as consideration in making investment decisions. There is no research in Indonesia that moderates dividend policy for the effect of dividend announcements on the cum and ex-dividend dates on stock prices, so a descriptive study is required to fill this gap.

Performance of Japanese leveraged ETFs

This study investigates the tracking performance and pricing efficiency of five groups of equity leveraged ETFs traded in Japan. One distinguishing feature of these leveraged ETFs is that they employ only futures contracts to achieve their desired exposures on the benchmark index. This allows us to develop a framework to determine their theoretical returns, based on the costs of carry of their underlying assets. The empirical results show that funds with positive (negative) leverage ratios tend to outperform (underperform) against their benchmarks, a pattern the opposite of US-listed equity-index tracking funds. Moreover, this outperformance/underperformance pattern concentrates on the popular ex-dividend dates of the constituent stocks of the underlying index. By using our theoretical framework, we reconcile these performance behaviors that can be attributed to the heavy reliance on futures contracts.

Chasing Dividends during the COVID-19 Pandemic

This paper investigates the impact of the COVID-19 pandemic on the trading behavior of investors around ex-dividend dates in Europe. The sudden decrease in the number of companies paying dividends reduced the opportunities to capture dividends. The firms that have maintained dividend payments during the pandemic thus attracted more interest than before. This led to a doubling in the magnitude of stock return patterns usually observed around ex-dividend days. Our evidence indicates that dividend-seeking investors are likely to be the main driver of the price patterns observed around ex-dividend dates.

Stock-Market Behavior on Ex-Dates: New Insights from German Stocks with Tax-Free Dividend

We examine stock prices and the number of stocks traded around ex-dividend dates of German stocks with tax-free dividend. Tax-free dividends are temporarily tax-exempt, as they reduce the initial purchasing price of a stock. With our analysis of this particular group of German stocks, we can make clear predictions regarding ex-date prices and analyze the number of stocks traded around ex-dates, doing so without the systematic bias of cum-ex trades over time. For XETRA, our empirical results indicate that ex-date prices decline, on average, by the amount of the dividend. We do not find a significant relationship between a stock’s price-drop ratio and dividend yield. Further, the empirical analysis suggests that there is no significant correlation between an abnormal number of a stock being traded and its dividend yield. These results are most consistent with tax-motivated reasoning. However, our volume analysis reveals no consistency regarding the abnormal number of stocks traded for multilateral trading facilities.

Withholding-tax non-compliance: the case of cum-ex stock-market transactions

This paper explores withholding-tax non-compliance in the context of dividend taxation. It focuses on a specific type of stock-market transactions around ex-dividend dates, so-called “cum-ex” trades, which caused considerable revenue losses due to illegitimate tax refunds in Germany and other countries. We use a stylized model of the stock-market equilibrium to analyze the incentives of traders on the German stock market and find that cum-ex trades are only profitable for both buyer and seller in the presence of collusive tax fraud. Our empirical analysis of market data for publicly traded German stocks from 2009 to 2015 confirms that transaction numbers of stocks suitable for cum-ex trades show the expected increase shortly before ex-dividend dates in the period before the tax refunding was reformed. In line with the collusion hypothesis, effects on stock-market prices are not found.

Stock-Market Behavior on Ex-Dividend Dates: New Insights from German Tax-Free Dividend Stocks

We examine stock prices and the number of stocks traded around ex-dividend dates of German stocks with tax-free dividend. Tax-free dividends are temporarily tax-exempt, as they reduce the initial purchasing price of a stock. With our analysis of this particular group of German stocks, we can make clear predictions regarding ex-date prices and analyze the number of stocks traded around ex-dates, doing so without the systematic bias of cum-ex trades over time. For XETRA, our empirical results indicate that ex-date prices decline, on average, by the amount of the dividend. We do not find a significant relationship between a stock’s price-drop ratio and dividend yield. Further, the empirical analysis suggests that there is no significant correlation between an abnormal number of a stock being traded and its dividend yield. These results are most consistent with tax-motivated reasoning. However, our volume analysis reveals no consistency regarding the abnormal number of stocks traded for multilateral trading facilities.

Research on the American Call Options on the Stocks Paying Multiple Dividends

Cassimon et al. (2007) propose a pricing formula of American call options under the multiple dividends by extending Roll (1977). However, because these studies investigate the option pricing formula under the escrow model, there is inconsistency for the assumption of the stock prices. This paper proposes pricing formulas of American call options under the multiple dividends and piecewise geometric Brownian motion. For the formulas, I approximate the log prices of ex-dividend dates to follow a multivariate normal distribution, and decompose the option price as a function of payoffs and exercise boundaries. Then, I obtain an upper bound of the American call options by substituting approximated log prices into the both of the payoffs and the exercise boundaries. Besides, I obtain a lower bound of the price by substituting approximated price only into the exercise boundaries. These upper and lower bounds are exact prices when the amounts of dividends are linear to the stock prices. According to the numerical study, the lower bound produces relatively small errors. Especially, it produces small errors when the dividends are more sensitive to the stock price changes.

Range-Curtailing for Options with Discrete Dividend Payments under General Diffusions

Lattice methods are often employed to price contingent claims with discrete dividends under the lognormal diffusion, but they are inclined to suffer from large decreases in execution speed as the number of dividends increases. Heteroskedastic assumptions for the stock price dynamics in between ex-dividend dates exacerbate these difficulties, and the option pricing problem with discrete dividends has thus been limited to the lognormal framework. This article proposes strategies to speed up lattice-based approximations under these general diffusions. A range-curtailing technique that bypasses superfluous computations of numerous subtrees at unrealistic stock prices is considered for European, American, and barrier options. The effect of discrete dividends on the premature exercise of American options is also studied. A benchmark method based on numerical integration is described to validate results obtained in the heteroskedastic framework. TOPICS:Options, statistical methods

Individuals Neglect the Informational Role of Prices: Evidence from the Stock Market

We find that a stock price fall in itself induces individual investors to buy the stock. That is, individuals neglect the negative information that may be attached to a stock price fall. Our identification strategy uses two distinct events which generate fictitious price falls. The first is the mechanical stock price adjustment on ex-dividend dates. The second explores the so-called left-digit effect, the well-documented empirical fact that individuals disproportionally focus on left digits when evaluating numbers. Our results contribute to the understanding of why people trade.

Fast quadrature methods for options with discrete dividends

Discontinuities in the stock price at ex-dividend dates make it hard to derive mathematically elegant solutions for European-style options with discrete dividends under the piecewise lognormal model. Numerical schemes such as non-recombining trees are either computationally intensive, lack accuracy when computations are fast, or are unable of handling discrete barriers. Quadrature techniques circumvent the latter two problems but due to the occurrence of time-consuming multifold integrals for multi-dividend options, their implementations have been limited to three-dividend European options only. This research proposes a faster computational method where the integrand is approximated by a Chebyshev polynomial and the fast Fejér quadrature is used to evaluate integral representations of European, American, Bermudan, continuous and discrete barrier options. The method has the capability of accurately handling an arbitrary number of discrete dividend payments in an efficient manner. The computational superiority and higher accuracy of the proposed approach is demonstrated via an extensive set of numerical results. • A fast method for pricing options with discrete dividend payments is developed. • The method can price options with different exercise and barrier features. • The method can efficiently handle more discrete dividends than existing methods. • A wide set of numerical results is given to illustrate the merits of the method.

Stock Market Behavior on Ex-Dividend Dates: The Case of Cum-Ex Transactions in Germany

This paper explores withholding tax non-compliance in the context of dividend taxation. It focuses on a specific type of stock-market transactions around ex-dividend dates, so-called “cum-ex” trades, which caused considerable revenue losses due to illegitimate tax refunds in Germany and other countries. We use a stylized model of the stock-market equilibrium to analyze the incentives of traders on the German stock market and find that cum-ex trades are only profitable for both buyer and seller in the presence of collusive tax fraud. Our empirical analysis of market data for publicly traded German stocks from 2009 to 2015 confirms that transaction numbers of stocks suitable for cum-ex trades show the expected increase shortly before ex-dividend dates in the period before the tax refunding was reformed. In line with the collusion hypothesis, effects on stock-market prices are not found.

An Accurate Pricing Formula for Vanilla Options in a Cash Dividend Framework with Linear Algorithmic Complexity

The aim of this article is to provide a fast and efficient formula to price vanilla options in presence of cash dividends. Bos & Vandermark have provided a simple and intuitive formula but not really accurate for long maturities or for strikes far from the money. Many authors have proposed some accurate formula but with a polynomial (quadratic for Henry-Labordere) algorithmic complexity in the number of dividends. In this article we derive a formula whose accuracy is equivalent to that of Henry-Labordere but with a linear algorithmic complexity, preserving the call-put parity and the continuity of the vanilla price at each ex-dividend dates.

The puzzle of 16 days between the ex-dividend and payment dates

Since the death of Steve Jobs, Apple has distributed eleven quarterly dividends. Of these, cash was paid 7 days after the ex-dividend date on nine occasions, and twice after 8 days. However, it used to pay cash at least 18 days after the ex-dividend date. When examining the whole market, firms tend to go ex-dividend on Wednesdays and pay the cash on Fridays. The durations between the two days are most likely to be 16 days. Besides the mode, payers tend to select the duration with a multiple of 7 days away from the most likely durations.

(Clustering in Time Span Decisions: Examining the New Zealand Stock Exchange)

Chinese Abstract: 紐西蘭證券交易所具有二項特徵：第一、紐西蘭市場規模是已開發國家中最小者，第二、發放的股利以紐幣或其他國家貨幣計價。本研究發現，發放紐幣者除息日至發放日間隔天數主要分佈9天與16天（眾數）者。至於發放他國貨幣樣本，主要分佈於23天、30天（眾數）與37天。綜合而言，除息日與發放日間隔天數相對集中於9天、16天、23天、30天與37天之現象，說明七天的週循環效應對人類時間間隔決策造成重要影響；本研究說明，習慣以七天為一單位之決策行為模式，不利於投資人權益。本研究也建議廢除中華民國公司法第165條「除息基準日前五日停止過戶」之規定，以配合電子化制度，而大幅縮短臺灣市場的除息日與發放日間隔天數，嘉惠投資人。English Abstract: The NZX is characterized by two features. First, it is the smallest market among the developed countries. Second, the dividends paid by firms are denominated in either NZD or other currencies. Among the events of dividends denominated in NZD, the two mostly common chosen durations between the ex-dividend and payment dates are 9 and 16 days (the mode). As to another independent sample of non-NZD dividends, the three most commonly chosen durations are 23, 30 (the mode), and 37 days. Consequently, these time spans are clustered around from 7 to 37 days, with gaps of 7 days. We confirm the notion that the number 7 plays a salient role in corporate decisions relating to time spans, due to the significance of the weekly cycle in our lives. This study claims that this behavior paradigm does not benefit investors. We further suggest that the Taiwanese government should abolish Article 165 of the Company Act, which requires that “the shareholders' roster shall not be altered within 5 days prior to the target date fixed by the issuing company for distribution of dividends.” This is to catch up with technological advancements in the modern world and for the benefit of investors.

Outperformance Certificates: analysis, pricing, interpretation, and performance

In this paper we introduce a new financial product named Outperformance Certificates. We study the €43 billion sample by examining 1,507 issues of the certificates outstanding in August 2005 issued by banks in Europe. We present formulas to price the certificates and empirically examine the profits in the primary market for issuing the certificates. We find that issuance of the certificates is profitable for the issuers in our sample. Issuers sell the certificate at prices 3–5 % above the fair value based upon the components of the underlying assets. We also find that the dividend yields and ex-dividend dates play an important role in the profitability of the certificates. The underlying securities tend to have high dividend yield and large market capitalization. We also find the certificates tend to mature soon after the ex-dividend dates of the underlying assets.

Adjusting Volatility to Discrete Cash Dividends

This article studies the modelling of discrete cash dividends. We distinguish the escrowed dividend model from the stock price process jumping downwards at ex-dividend dates. We show how dividend jumps impact the second moment of the stock terminal distribution. This distinctive feature precludes usual implied volatility data from being directly input in such a type of model, since they are extracted from another pricing framework. A preliminary volatility adjustment to discrete cash dividends is then described. This global adjustment leads to a refinement of the local volatility surface. This refinement appears to be quite natural theoretically speaking. It proves also to be very efficient numerically, at least for the simplest products such as American-style options.

The Ex-Dividend Day Anomaly in the Spanish Stock Market

The purpose of this paper was to investigate the behavior of stock returns and trading volumes around ex-dividend dates in the Spanish stock market, using event study methodology. Clear consensus is evident in the literature about the fact that stock prices fall by less than the dividend paid on ex-dividend days. This behavior indicates a preference for capital gains over dividends, generally explained in terms of tax advantages. Contrary to the existing consensus, the results of this study did not reflect significant abnormal returns on ex-dividend days. The finding is consistent with the fact that nowadays Spain taxes dividends and capital gains at the same rate. In addition, abnormally high trading volumes are apparent around ex-dividend dates, especially for high-yield stocks.

Short selling around dividend announcements and ex-dividend days

We examine short selling around dividend announcements and ex-dividend dates. Contrary to our initial expectation, we do not find abnormally high short-selling activity prior to announced dividend decreases, which runs counter to the argument that short sellers have the ability to acquire private information before its public dissemination. However, we find that the common negative relation between current short selling and future daily returns prior to unfavorable dividend announcements is similar to the negative relation during non-event times, suggesting that dividend announcements do not provide unusual trading opportunities for informed traders (Gonedes, 1978, and Benartzi et al., 1997). Around ex-dividend dates, we do find abnormal short selling, which may be explained by the return pattern around ex-dividend days documented by Lakonishok and Vermaelen (1986), who suggest that demand for a particular stock by dividend capture traders drives stock prices above their fundamental value thus providing a profitable trading opportunity for short sellers. Consistent with this conjecture, we find that both the level of short selling and the return predictability of short selling is markedly higher on and after the ex-dividend day than during non-event times.

Short Selling around Dividend Announcements and Ex-Dividend Days

We examine short selling around dividend announcements and ex-dividend dates. Contrary to our initial expectation, we do not find abnormally low (high) short-selling activity prior to announced dividend increases (decreases), which runs counter to the argument that short sellers have the ability to acquire private information before its public dissemination. However, we find that short selling prior to unfavorable dividend announcements is less profitable than short selling during non-event times, suggesting that some dividend announcements are not informative (Gonedes, 1978, and Benartzi, Michaely, and Thaler, 1997). Around ex-dividend dates, we do find abnormal short selling, which may be explained by the return pattern around ex-dividend days documented by Lakonishok and Vermaelen (1986), who suggest that demand for a particular stock by dividend capture traders drives stock prices above their fundamental value thus providing a profitable trading opportunity for short sellers. Consistent with this conjecture, we find that short selling on and after the ex-dividend day is more profitable as the negative relation between short selling and future returns is stronger on and after the ex-dividend day than during other times.

Accurate approximation formulas for stock options with discrete dividends

Pricing options on a stock that pays discrete dividends has not been satisfactorily settled in the literature. Frishling (2002) shows that there are three different models to model stock price with discrete dividends, but only one of these models is close to reality and generates consistent option prices. We follow Frishling (2002) by calling this model Model 3. Unfortunately, there is no analytical option pricing formula for Model 3, and many popular numerical methods such as trees are inefficient when used to implement Model 3. A new stock price model is proposed in this article. To guarantee that the option prices generated by this new model are close to those generated by Model 3, the distributions of the new model at exdividend dates and maturity approximate the distributions of Model 3 at those dates. To achieve this, a discrete dividend in Model 3 is replaced by a continuous dividend yield that can be represented as a function of discrete dividends and stock returns in the new model. Thus, the new model follows a lognormal diffusion process and the analytical option pricing formulas can be easily derived. Numerical experiments show that our analytical pricing formulas provide accurate pricing results.