Ex-dividend day price behavior and liquidity in a tax-free emerging market |
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| Affiliation: | 1. Newcastle Business School, University of Newcastle, Newcastle, NSW 2300, Australia;2. QUT Business School, Queensland University of Technology, Brisbane, QLD, Australia;1. Dubai Business School, University of Dubai, P.O. Box: 14143, Academic City, Dubai, United Arab Emirates;2. Department of Investment and Capital Markets, Faculty of Management, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland;1. Department of Applied Informatics, University of Macedonia, 156 Egnatia str., P.O. Box 1591, 54636 Thessaloniki, Greece;2. School of Economics, Business Administration and Legal Studies, International Hellenic University, 14th klm Thessaloniki-Moudania, 57001 Thessaloniki, Greece |
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| Abstract: | This paper investigates the effect of liquidity on the ex-dividend day price premium. It is well documented that prices drop less than the dividend amount on the ex-day; this market inefficiency is generally attributed to the tax-induced clientele effect and various structural frictions. We show that, even in a tax-free market characterized by the presence of large block holders and the absence of the usual microstructure impediments, abnormal returns persist. Using a newly defined free-float adjusted measure of market fluidity, we find that liquidity is economically and statistically significant in the determination of the ex-dividend day price anomaly, indicating that trading restrictions can partially explain the ex-dividend return puzzle. |
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