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School of Business | Department of Accounting | Finance | 2014
Thesis number: 13717
Stock price behavior on and around the ex-dividend day: Evidence from the Finnish stock market
Author: Sopanen, Kiri
Title: Stock price behavior on and around the ex-dividend day: Evidence from the Finnish stock market
Year: 2014  Language: eng
Department: Department of Accounting
Academic subject: Finance
Index terms: rahoitus; financing; osakemarkkinat; stock markets; kurssivaihtelut; volatility; osingot; dividends; osakkeet; shares; hinnat; prices
Pages: 75
Key terms: ex-dividend day; dividend; stock price; tax clienteles; arbitrage trading; abnormal returns

This study investigates stock price behavior on and around the ex-dividend day and its causative phenomena. The theoretical framework that provides the premises for the investigation includes three main viewpoints of this academic sphere: the tax hypothesis, the short-term trading hypothesis and dynamic dividend clientele models. The research objectives that the study sets out to answer are threefold: the difference between detached dividend and stock price drop on the ex-day; the effect of tax treatment of dividends and capital gains on ex-day trading; and the effect of (reciprocal) pursuit of arbitrage on ex-day trading. The objective of this thesis is to provide updated evidence. Various factors have changed since the most recent research, which from theoretical viewpoint should affect the outcome of the investigated research objectives.


Totaling 469 ex-day observations, data of the study comprises closing prices of common stocks that were traded on Helsinki Stock Exchange in any of the years between 2008 and 2013, and normal dividends that detached a day after the annual general meeting. The study also examines the existence of tax-induced clienteles by deriving correlations between pooled ex-day premiums and respective dividend yields, and respective degrees of foreign ownership. In addition, the study delves into the probability of arbitrage-seeking short-term trading and abnormal returns. These will be investigated with an event study.


This study found that on the ex-day the stock prices fell approximately 75% in relation to the dividends on a market average level. Pooling the data proved that higher dividend yields resulted in higher stock price drops. This suggests that domestic investors demanded increasingly smaller tax premiums. Event study revealed positive abnormal returns in a few higher dividend-yield pools but none after the ex-day. This implies that when short-term dividend capturing occurred, it was not followed through but remained unfinished, which might partially explain why, on a market average level, the magnitude of price drop on the ex-day was smaller than the detached dividend.
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