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Time-Series Variation in Dividend Pricing

Authors

  • KENNETH M. EADES,

  • PATRICK J. HESS,

  • E. HAN KIM

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    • Eades is from the University of Virginia, Hess is from the University of Minnesota, and Kim is from the University of Michigan. This article has benefited from helpful comments from workshop participants at Case Western Reserve University, University of Michigan, New York University, Ohio State University, Princeton University, Rutgers University, the Second Conference on Financial Economics and Accounting at the State University of New York at Buffalo, and the Winter Finance Conference at University of Utah. In addition, the authors would like to thank Andrew Christie, Ravi Jagannathan, Kose John, Bong-Soo Lee, David Mayers, Mike Sher, and the referee, Jim Poterba, for helpful comments and Vijay Singal for assistance in data collection.

ABSTRACT

Ex-dividend day returns vary over time. The ex-day returns of high-yield stocks are persistently positive for some time periods and negative for others; in contrast, ex-day returns of low-yield stocks are always positive and less variable. We are unable to explain the variation with changes in the tax code, but we do find a strong effect for the introduction of negotiated commissions. We find evidence that corporate dividend capturing is affecting ex-day returns and confirm the findings of Gordon and Bradford (1980) that the price of dividends is countercyclical.

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