Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes

Murray Frank*, Ravi Jagannathan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

139 Scopus citations

Abstract

It is well documented that stock prices on ex-dividend days drop by less than the value of the dividend, on average. This has commonly been attributed to the effect of tax clienteles. We examine data from the Hong Kong stock market, where neither dividends nor capital gains are taxed. As in the U.S., the average stock price drop is less than the value of the dividend; specifically, the average dividend for the period 1980-1993 is HK $0.12 and the average price drop is HK $0.06. We are able to account for this both theoretically and empirically through market microstructure arguments.

Original languageEnglish (US)
Pages (from-to)161-188
Number of pages28
JournalJournal of Financial Economics
Volume47
Issue number2
DOIs
StatePublished - Feb 15 1998

Keywords

  • Asset Pricing
  • Bid-Ask Spread
  • Dividends
  • G12
  • G35
  • Market Microstructure

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Fingerprint

Dive into the research topics of 'Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes'. Together they form a unique fingerprint.

Cite this