The Impact of Market Structure on Ex-Dividend Day Stock Price Behavior
Financial Management, Forthcoming
49 Pages Posted: 24 May 2017
Date Written: March 31, 2017
We explore the impact of market structure on the ex-day price anomaly. Measuring the price-drop ratio (hereafter PDR) as the ratio of the price change on the ex-day to the dividend amount, we find that the average Nasdaq PDR is significantly less than one and significantly less than the NYSE PDR. We then investigate a subset of firms that voluntary switch from Nasdaq to the NYSE and find that the PDR significantly increases after the switch suggesting that market structure impacts PDRs. We also create a matched sample and find that the Nasdaq PDR converges toward its matched NYSE counterpart, particularly after the introduction of SuperMontage. Our evidence is consistent with significant Nasdaq market structure changes reducing execution cost differences between the two exchanges and, in turn, reducing the PDR difference. Overall, our results highlight the important role market structure can play in our understanding of anomalies.
Keywords: Dividends; Taxes; Asset Pricing; Market Microstructure; Transaction Costs; Nasdaq; NYSE; Exchange Switchers
JEL Classification: G10; G12; G35; H20; H24
Suggested Citation: Suggested Citation