11 ms·

this is just false. http://finance.zacks.com/stock-prices-drop-during-exdividend-date-3601.html http://finance.zacks.com/stock-prices-drop-during-exdividend...

• mywittyname 10y ago
  Theoretically, yes it should impact the price. In practice, you can't identify when a dividend occurred or how much it was by looking at a stock's price. If there was a strong correlation between dividend payments and stock price, one could algorithmically pick out when a dividend occurred and what it's value was. But you can't because it's hidden in the noise of the market movements. If what I was saying was false, then the ex-date of the dividend should always close at a lower price than the previous day. However, it's a coin flip as to whether or not the ex date stock price closes above or below the previous day. This suggests that regular dividends are factored into the price of a stock. You're trying to claim that the ex-date of the stock should close at $previous_close - $dividend every time. But that doesn't happen. When reality and theory disagree, trust reality.
  • ghshephard 10y ago
    If it didn't drop by the amount of the dividend, then people would be making an awful lot of money purchasing stock a day before the ex-date, being the owner of record, collecting the dividend, and then just selling the stock right away.
    • mywittyname 10y ago
      Well I just looked through tons of dividend distributions and stock price doesn't drop by the amount of the dividend in like 95% of cases. I don't dispute the theory about why you are right, it absolutely makes sense, but there's a mountain of evidence that it doesn't happen in reality. For most companies the dividend distribution is less than average daily variance of stock prices. Which is why your strategy won't necessarily yield great results. A 3% yield distributed four times a year is only 0.75% of the stock value. The SEC also has special rules for extremely large dividends so that the ex-date is after the distribution date.
      • ghshephard 10y ago
        It's entirely possible that either the stock or market may be volatile, but that's in addition not, instead of, the drop in value resulting from a dividend payout. So, if we have a $100 stock with a 3% yield paid 4x a year, then the stock will drop $0.75 on the ex-date. Let's say, for the sake of argument, that you have some combination of market/stock volatility that moves the stock $4 in either direction. So, in the case of the stock going up $4, on the ex-date, it would go up $3.25. In the case of the stock going down $4, on the ex-date it would go down $4.75. Yes - it's true that if you are just looking at a stock chart, it might be hard to eyeball the date of the dividend if there is a lot of volatility, but, presuming that volatility is evenly distributed over various stocks dividend dates, there is no way to avoid having the stock drop down by the value of the dividend. I guarantee you there is a pretty large number of investment bankers who have all sorts of models that arbitrage that kind of variance, pretty much eliminating any gap, should it exist for more than a few seconds after opening. I don't understand how the ex-date could occur after the distribution date. The whole idea behind the ex-date, is that is the date on which the dividend belongs to the seller, not the buyer. I.E. If I buy the stock on (or after) the ex-date, I do not get the dividend, it belongs to the seller. Depending on the exchange, it's usually two business days prior to the date of record set by the board of directors. (At least on the SGX, the exchange I'm familiar with). So how could you place the ex-date after the distribution date? What would the date of record be in that case? Here is my favorite resource on this topic - http://www.spdrs.com.sg/education/files/SPDRU%20Dividend%20Dates%20-%20SG.pdf http://www.spdrs.com.sg/education/files/SPDRU%20Dividend%20D...
      • kgwgk 10y ago
        I don't know how hard did you look, but taking for example the two stocks that you mentioned (MSFT and PG) and the ex-dividend dates since 2007 it's easy to see that there is an effect. The mean return for those dates is -0.5% for MSFT (vs. +0.05% for the market) and -1.0% for PG (vs. +0.1% for the market). Doing a regression of stock returns on market returns you will find that the result is statistically significant (p<0.001). R code follows: library(quantmod) getSymbols(c("MSFT","PG","SPY")) msft.ex=index(quantmod::getDividends("MSFT")["2007::"]) pg.ex=index(quantmod::getDividends("PG")["2007::"]) msft.rets=as.data.frame(merge(dailyReturn(MSFT$MSFT.Close)[msft.ex],dailyReturn(SPY$SPY.Close)[msft.ex])) colnames(msft.rets)=c("MSFT","SPY") msft.fit=lm(MSFT~SPY,msft.rets) summary(msft.fit) confint(msft.fit) pg.rets=as.data.frame(merge(dailyReturn(PG$PG.Close)[pg.ex],dailyReturn(SPY$SPY.Close)[pg.ex])) colnames(pg.rets)=c("PG","SPY") pg.fit=lm(PG~SPY,pg.rets) summary(pg.fit) confint(pg.fit) par(mfrow=c(1,2)) plot(msft.rets$SPY,msft.rets$MSFT,xlim=c(-0.08,0.08),ylim=c(-0.08,0.08)) abline(msft.fit,col="red") grid() plot(pg.rets$SPY,pg.rets$PG,xlim=c(-0.08,0.08),ylim=c(-0.08,0.08)) abline(pg.fit,col="red") grid()