Ex-Dividend Day Stock Price Behaviour: Evidence from India

Authors

  • M. Ramachandran Professor, Department of Economics, School of Management, Pondicherry University, Puducherry
  • P. S. Sanju Ph. D Research Scholar, Department of Management Studies, School of Management, Pondicherry University, Puducherry
  • P. S. Nirmala Ph. D Research Scholar, Department of Management Studies, School of Management, Pondicherry University, Puducherry

DOI:

https://doi.org/10.58716/pjbagitmba.v1i2.21

Keywords:

Dividend, ex-dividend day, price drop ratio, short-term trading, event study methodology

Abstract

The aim of this paper is to examine the ex-dividend day price behaviour of dividend paying Indian stocks during the period 2005-2007. From the ex-dividend day price drop to dividend ratios, we find that stock prices drop by less than dividend on the ex-dividend day, which could be explained neither by taxation hypothesis nor microstructure explanations. So, we test whether short term trading hypothesis could explain the price drop. To this end, event study methodology is employed to examine stock price and trading volume behaviour on and around ex-dividend day. Significant positive abnormal return on ex-dividend day and significant positive abnormal volumes on and around ex-dividend day are observed. These findings suggest that there is short term trading activity around ex-dividend day that causes the ex-dividend day price drop to dividend ratio being less than one. To the best of our knowledge, this is the first study that examines the ex-dividend day price behaviour for the Indian market.

Additional Files

Published

30-06-2011

How to Cite

Ramachandran, M. ., Sanju, P. S. ., & Nirmala, P. S. . (2011). Ex-Dividend Day Stock Price Behaviour: Evidence from India. Prabhandan - Journal of Business Administration, 1(2), 35–42. https://doi.org/10.58716/pjbagitmba.v1i2.21

Issue

Vol. 1 No. 2 (2011): Prabhandan June 2011 Issue

Section

Articles

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