The Ex-Dividend Day Behavior of Stock Prices: A Re-Examination of the Clientele Effect



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    • Graduate School of Business Administration, New York University. This paper is a revised chapter of my Ph.D. dissertation at the University of Rochester, N.Y. I wish to thank my dissertation Committee—John Long (Chairman), Jerold Warner, and Ross Watts—for their support and encouragement. I would also like to thank the participants in the finance workshops of the University of Rochester, the University of Chicago, New York University, Northwestern University, and the University of Pittsburgh. Finally, I would like to thank Robert H. Litzenberger and Michael Brennan for their valuable comments. Unfortunately, the remaining errors are all mine.


Past studies have documented an ex-dividend day price drop which is less than the dividend per share and positively correlated with the corresponding dividend yield. In contrast to prior work, we show that, without additional information, the marginal tax rates cannot be inferred from this phenomenon which is, therefore, not necessarily the result of a tax induced clientele effect. Despite adjustments for potential biases in earlier work, however, the correlation between the ex-dividend relative price drop and the dividend yield is still positive which is consistent with a tax effect and a tax induced clientele effect.