Tick size,NYSE rule 118, and ex-dividend day stock price behavior |
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| Affiliation: | 1. Technical University Munich, 85748 Garching, Germany;2. School of Economics and Management, Leibniz University Hannover, Königsworther Platz 1, 30167 Hannover, Germany;3. University of Liverpool Management School, Chatham Street, Liverpool, L69 7ZH, UK;1. DCU Business School, Dublin City University, Dublin 9, Ireland;2. OG Consultancy, 151 Rathmount, Blackrock, Co., Louth, Ireland;1. NHH Norwegian School of Economics, Department of Business and Management Science, Norway;2. Erasmus University Rotterdam, The Netherlands;3. Tinbergen Institute, The Netherlands;4. CESifo, Germany |
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| Abstract: | Bali and Hite (1998) and Dubofsky (1992) propose models in which market microstructure effects play a role in the ex-dividend day price drop anomaly. Bali and Hite suggest that the anomaly is caused solely by price discreteness, while Dubofsky suggests that NYSE Rule 118 is also involved. We test these models by examining cum- to ex-day price drops during the one-eighth, one-sixteenth, and decimal tick size regimes. While the evidence is qualitatively consistent with Dubofsky's predictions, neither model is satisfactory in a quantitative sense. One of our main empirical findings is that no significant decline was evident in the magnitude of the ex-day anomaly after the tick size reduction. |
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