The Chilean ex-dividend day [An article from: Global Finance Journal]

by A. Castillo, K. Jakob

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This digital document is a journal article from Global Finance Journal, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
In a perfect capital market ex-dividend day share prices should fall by exactly the amount of the dividend. However, empirical evidence shows that stock prices drop by less than the dividend amount. The most popular explanations for this anomaly are tax or market microstructure related. We examine ex-dividend day behavior of stocks on the main Chilean exchange. We find an average price drop to dividend ratio of 0.815. Given the absence of good market microstructure arguments for the Chilean case, we explore if the tax clientele theory has support. The tax story indicates that higher dividend yields should produce price drop to dividend ratios closer to one, but we find no relation between dividend yield and this ratio. The evidence suggests that arbitrageur transactions costs may be the friction that restricts ex-day price adjustment in Chile.

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