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Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex‐Dividend Pricing before and after Decimalization
Author(s) -
Graham John R.,
Michaely Roni,
Roberts Michael R.
Publication year - 2003
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1046/j.1540-6261.2003.00617.x
Subject(s) - economics , dividend , decimal , financial economics , stock (firearms) , monetary economics , common stock , econometrics , finance , paleontology , context (archaeology) , arithmetic , mathematics , engineering , biology , mechanical engineering
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.