Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing before and after Decimalization

Journal Article (Journal Article)

By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/16s to decimals. This study examines the effect of this change in price quotations on ex-dividend day activity. We find that abnormal ex-dividend day returns increase in the 1/16 and decimal pricing eras, relative to the 1/8 era, which is inconsistent with microstructure explanations of ex-day price movements. We also find that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains affects ex-day pricing.

Full Text

Duke Authors

Cited Authors

  • Graham, JR; Michaely, R; Roberts, MR

Published Date

  • January 1, 2003

Published In

Volume / Issue

  • 58 / 6

Start / End Page

  • 2611 - 2636

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1046/j.1540-6261.2003.00617.x

Citation Source

  • Scopus