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> The timing of dividend payments is irrelevant. False. If I receive cash today I can reinvest it and start earning a return. If I receive cash in a month I ha
by phyalow 11y ago
> The timing of dividend payments is irrelevant.
False. If I receive cash today I can reinvest it and start earning a return. If I receive cash in a month I have forgone one months reinvestment return.
> investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market.
False. Well if you are short a stock over ex dividend date then you need to pay the owner of the stock (whomever you borrowed from) 1) the dividend which he has forgone 2) a financing spread equal to a benchmark (e.g. FED Funds + 300 bp's) for the duration you are short.
No offense but you really haven't thought this through very hard.
Also markets are not efficient despite what you read in academia.
- JDDunn9 11y agoThe net present value takes into account the difference between payment today and payment tomorrow. The ex-dividend rate is an implementation flaw that makes the stock price discontinuous at the dividend date. If dividends were pro-rata it would not be. I never said markets were perfectly efficient. You didn't think through your answer very hard did you? ;)
- phyalow 11y agoI think we are going to continue disagreeing. You seem to enjoy Finance so I would encourage you to learn more about it for your own benefit.