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Limit Order Adjustment Mechanisms and Ex‐Dividend Day Stock Price Behavior
Author(s) -
Jakob Keith,
Ma Tongshu
Publication year - 2005
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2005.tb00111.x
Subject(s) - stock exchange , dividend , economics , limit (mathematics) , stock (firearms) , stock price , econometrics , order (exchange) , financial economics , monetary economics , mathematics , biology , finance , mechanical engineering , mathematical analysis , paleontology , series (stratigraphy) , engineering
Unlike the NYSE, the Toronto Stock Exchange (TSX) does not adjust prices in the outstanding limit orders on ex‐dividend days. We find that TSX ex‐day stock price behavior differs from that on the NYSE in several key aspects. In each case, the TSX ex‐day behavior is consistent with the lack of a limit order adjustment mechanism. Our findings confirm that market microstructure is an important factor that contributes to the observed Canadian ex‐day price behavior. Our findings also resolve the puzzle of the relatively small ex‐day price drop in Canada.