Ex-Dividend Day Behaviour of Australian Share Prices

Abstract

In North America, on the day a stock has first been quoted ex-dividend, its price has tended to fall by less than the amount of the dividend. Australian dividends likewise have been discounted, by about 25% relative to capital gains. Explanations for the North American discount have included higher taxes on dividends than on capital gains, but this explanation begs questions of marginal transaction costs, time lags embedded in arbitrage and the fact that the tax positions of Australian shareholders are more complex than a simple tax-driven preference for capital gains would suggest. The anomalous share price behaviour extends before and after the ex-dividend day, and has implications for time-related anomalies observed for the market as a whole.

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