Limit Order Adjustment Mechanisms and Ex-Dividend Day Stock Price Behavior |
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| Authors: | Keith Jakob Tongshu Ma |
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| Affiliation: | the Ron &Judy Paige Faculty Fellow and Assistant Professor of Finance at the University of Montana in Missoula, MT;Assistant Professor of Finance affiliated with the University of Utah in Salt Lake City, UT and Binghamton University in Binghamton, NY |
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| Abstract: | Unlike the NYSE, the Toronto Stock Exchange (TSX) does not adjust prices in the outstanding limit orders on ex-dividend days. We find that TSX ex-day stock price behavior differs from that on the NYSE in several key aspects. In each case, the TSX ex-day behavior is consistent with the lack of a limit order adjustment mechanism. Our findings confirm that market microstructure is an important factor that contributes to the observed Canadian ex-day price behavior. Our findings also resolve the puzzle of the relatively small ex-day price drop in Canada. |
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