TY - JOUR
T1 - The effect of a reduction in price discreteness on ex-day stock returns in a unique environment
AU - Al-Yahyaee, Khamis Hamed
PY - 2013/2
Y1 - 2013/2
N2 - This paper examines the effect of a reduction in tick size on ex-dividend day stock price behavior by taking advantage of unique data for which there are no taxes on dividends and capital gains and tick size is fixed for all traded securities. These data allow us to differentiate among competing ex-dividend day hypotheses in the absence of confounding tax effects present in other markets. We find that ex-day premiums increase and abnormal returns decrease after the tick size becomes smaller, which is in line with the market microstructure hypothesis. In contrast, we do not find any significant increase in abnormal volume with a reduction in tick size. This finding is inconsistent with the pattern that should occur if transaction cost is the dominant factor that causes the ex-day phenomenon.
AB - This paper examines the effect of a reduction in tick size on ex-dividend day stock price behavior by taking advantage of unique data for which there are no taxes on dividends and capital gains and tick size is fixed for all traded securities. These data allow us to differentiate among competing ex-dividend day hypotheses in the absence of confounding tax effects present in other markets. We find that ex-day premiums increase and abnormal returns decrease after the tick size becomes smaller, which is in line with the market microstructure hypothesis. In contrast, we do not find any significant increase in abnormal volume with a reduction in tick size. This finding is inconsistent with the pattern that should occur if transaction cost is the dominant factor that causes the ex-day phenomenon.
KW - Bid-ask spread
KW - Dividends
KW - Market microstructure
KW - Tax effects
KW - Tick size
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U2 - 10.1016/j.intfin.2012.10.003
DO - 10.1016/j.intfin.2012.10.003
M3 - Article
AN - SCOPUS:84870161184
SN - 1042-4431
VL - 23
SP - 283
EP - 294
JO - Journal of International Financial Markets, Institutions and Money
JF - Journal of International Financial Markets, Institutions and Money
IS - 1
ER -