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Ex-day stock price behavior in an emerging market

Islam, Md. Mohibul and Isaksson, Anders and Tareq, Mohammad Ali (2015) Ex-day stock price behavior in an emerging market. Research in Finance, 31 . pp. 87-103. ISSN 0196-3821

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Official URL: http://dx.doi.org/10.1108/S0196-382120150000031004

Abstract

This study investigates the ex-dividend day stock prices of the firms listed on the Dhaka Stock Exchange (DSE) where the tax rate is higher on dividends than on capital gains. The results help to explain what impact taxes have on the ex-day stock prices behavior in an emerging market. To examine the tax effect on the ex-day stock prices behavior, this study considers after-tax dividends and computes the raw price ratio, marketadjusted price ratio, raw price drop, market-adjusted price drop. The market-adjusted ex-dividend day abnormal returns and relative trading volume are also examined to determine the direction of investor trading around the ex-day. The main hypotheses examine whether the mean (median) differs from its theoretical value by using a t-test and nonparametric sign-rank test. The findings suggest that the drop of stock prices on the ex-day on the DSE is not due to taxes or transaction costs but to valuation assumptions made by investors in determining the equilibrium stock price. Findings of this study will be useful for investors and traders in their valuation assumption to trade around the ex-dividend day. Market participant's preference of dividends, and exempted tax and its ultimate contribution to the equity value explain the ex-day stock prices behavior in the Dhaka Stock Exchange

Item Type:Article
Uncontrolled Keywords:ex-dividend day, short-term trading, tax hypothesis
Subjects:H Social Sciences > HB Economic Theory
Divisions:Malaysia-Japan International Institute of Technology
ID Code:55141
Deposited By: Fazli Masari
Deposited On:11 Aug 2016 09:30
Last Modified:15 Feb 2017 07:40

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