Working Paper 500

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Ex-Dividend Price Behavior of Common Stocks

John H. Boyd - Senior Research Officer
Ravi Jagannathan

Revised March 1, 1994

Abstract
This study examines common stock prices around ex-dividend dates. Such price data usually contain a mixture of observations—some with and some without arbitrageurs and/or dividend capturers active. Our theory predicts that such mixing will result in a nonlinear relation between percentage price drop and dividend yield—not the commonly assumed linear relation. This prediction and another important prediction of theory are supported empirically. In a variety of tests, marginal price drop is not significantly different from the dividend amount. Thus, over the last several decades, one-for-one marginal price drop has been an excellent (average) rule of thumb.


Published In: Review of Financial Studies (Vol. 7, No. 4, Winter 1974, pp. 711-741)

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