An analysis of ex-dividend day abnormal trading volumes and share price changes in the Australian equity market

TL;DRAbstract

This study examines share trading around the ex-dividend day of stocks traded in the Australian equity market. The study documents abnormal trading volumes in both the cum-dividend and ex-dividend periods, and share price changes that are related to transactions costs and dividend yield. A number of previous studies of ex-dividend day share trading have reached inconclusive or ambiguous results. An understanding of the motivation for share trading around the ex-dividend day is important as it provides valuable information that can be used in the estimation of cost of capital and capital budgeting decisions. A finding of abnormal trading volume around the ex-dividend day will conclusively eliminate theoretical models based on tax clienteles. This study uses a sample of 4580 unfranked and fully franked ex-dividend events for Australian company ordinary shares in the period March 1995 to December 2001. The event study methodology is used to estimate abnormal trading volumes and share pric

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