Download This PaperDRIPs and the Dividend Pay Date Effect
74 Pages Posted: 7 Nov 2012 Last revised: 22 Nov 2015
Date Written: September 22, 2015
Abstract
On the day that dividends are paid we find a significant positive mean abnormal return that is completely reversed over the following days. This dividend pay date effect has strengthened since the 1970s, and is consistent with the temporary price pressure hypothesis. The pay date effect is concentrated among stocks with dividend reinvestment plans (DRIPs), and is larger for stocks with a higher dividend yield, greater DRIP participation, and greater limits to arbitrage. Over time, profits from a trading strategy that exploits this behavior are positively related to the dividend yield and spread, and negatively associated with aggregate liquidity.
Keywords: market efficiency, dividend, anomaly, dividend reinvestment plan, retail investors, sentiment, transaction costs, short sales, institutional ownership
JEL Classification: D82, G14, G19
Suggested Citation: Suggested Citation
Henk Berkman (Contact Author)
University of Auckland Business School ( email )
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