Stock price behavior and the possibility of abnormal gain around the ex-dividend day

Abstract

The Efficient Market Hypothesis (EMH) and the behavior of stock prices have largely been discussed in financial literature. The thesis aims to analyze the behavior of stock prices and abnormal returns specifically on ex-dividend day within the Japan Exchange Group (JPX). To answer the research question and achieve our objectives, we use the event study method and sample data encompasses 89 companies listed on JPX, focusing on their ex-dividend stock prices, cash dividends, and cum dividend day stock prices and answer the question based on hypotheses test (raw price drop ratio, market adjusted price ratio, raw price drop ratio, market adjusted price drop ratio, Average abnormal return, and Cumulative Average Abnormal Return). This thesis documented that the stock price drops are not the same as the dividend amount of Japan Exchange Group (JPX). This study also finds significant evidence of a market abnormal return around ex-dividend day. Furthermore, we investigate the cross-sectional regressions to examine the relationship between multiple variables (dividend yield, transaction cost, and risk) that influence the ex-day abnormal gain. We find that a high tax imposed on dividend yield leads to reducing some part of the abnormal gain on the ex-day and also eliminates short-term trading, but not completely, as we also observe a positive relation between ex-dividend day abnormal gain and transaction cost.