Behavioral Influences of the Ex Dividend Day Valuation

This study examines the relative valuation of ordinary taxable dividends on the ex dividend day of common stocks traded in the NYSE & AMEX. Although most studies in the literature provide tax or microstructure related explanations to why prices decline on ex dividend days by an amount less than the dividend, there is little empirical evidence on why this price drop fluctuates significantly over time. We test whether this time series variation of the price drop on the ex dividend day can be linked to the investor's preferences prescribed by the Disposition effect. We find that whether a stock is a winner or a loser before the ex dividend day plays an important role on the valuation of the dividend.