Ex-dividend days: Is there typically anything out of the ordinary?

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JustinR
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Ex-dividend days: Is there typically anything out of the ordinary?

Post by JustinR » Mon Jun 18, 2018 3:43 am

Other than the price dropping due to the dividend, is there typically any out-of-the-ordinary market movement on that day? Such as due to everyone waiting to buy on that day.

Any studies been done on this? Or maybe it's impossible to tell either way.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by nedsaid » Mon Jun 18, 2018 8:29 am

You would expect the price of a stock to drop by the amount of the dividend on ex-dividend day. There are other things at play here though. Good news could boost the stock price even with the announced dividend. In any case, the price is lower than it would have been if there had been no dividend announcement.
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by David Jay » Mon Jun 18, 2018 8:48 am

A confounding issue is that some people WANT the dividend (income investors) and some people want to AVOID the dividend (capital gains investors). So it is mostly a wash, even though there can be an uptick in activity around XD on high-dividend paying stocks. I have not seen any significant studies on this, but I admit that I haven't searched for them.
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by livesoft » Mon Jun 18, 2018 8:52 am

Typically? No. But sometimes the ex-dividend day coincides with something like the FOMC meeting press conference or other newsworthy announcement.
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by grabiner » Mon Jun 18, 2018 10:52 pm

nedsaid wrote:
Mon Jun 18, 2018 8:29 am
You would expect the price of a stock to drop by the amount of the dividend on ex-dividend day. There are other things at play here though. Good news could boost the stock price even with the announced dividend. In any case, the price is lower than it would have been if there had been no dividend announcement.
But the reason for this expectation is that investors pay prices based on expected returns. If a stock will pay a $2 dividend today, then anyone holding the stock today will hold a share of stock and $2 in cash tomorrow. Therefore, if investors expect the stock to be worth $100 tomorrow, they should pay $102 for the stock today.

The reported "change" in the stock market tables accounts for this; if the stock closes at $102 today, and $101 tomorrow, this will be reported as a gain of $1, not a loss. (And it is a gain; someone who buys for $102 today and sells for $101 tomorrow makes a $1 profit including the dividend.)
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by nedsaid » Wed Jun 20, 2018 7:56 am

grabiner wrote:
Mon Jun 18, 2018 10:52 pm
nedsaid wrote:
Mon Jun 18, 2018 8:29 am
You would expect the price of a stock to drop by the amount of the dividend on ex-dividend day. There are other things at play here though. Good news could boost the stock price even with the announced dividend. In any case, the price is lower than it would have been if there had been no dividend announcement.
But the reason for this expectation is that investors pay prices based on expected returns. If a stock will pay a $2 dividend today, then anyone holding the stock today will hold a share of stock and $2 in cash tomorrow. Therefore, if investors expect the stock to be worth $100 tomorrow, they should pay $102 for the stock today.

The reported "change" in the stock market tables accounts for this; if the stock closes at $102 today, and $101 tomorrow, this will be reported as a gain of $1, not a loss. (And it is a gain; someone who buys for $102 today and sells for $101 tomorrow makes a $1 profit including the dividend.)
What I am saying is that the expectation of future returns changes on a daily basis. Better than expected news today will boost future expectations over what those expectations were the day before.
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by Walkure » Wed Jun 20, 2018 8:55 am

I find this to be one of the most interesting topics in all of investing, not least of all because of the near universal belief that, in a hypothetical total absence of news, the stock ought to move by exactly the amount of the dividend.
This creates a number of curiosities:
1. Some individual stocks (particularly foreign stocks held through custodial intermediaries) can pay out several weeks after the ex-dividend date, which in theory should imply some sort of PV discount back to the ex-dividend day to account for the opportunity cost of the time the dividend is in limbo.
2. Say a given stock trades at a P/B of 2. It has a book value of $1b and a market cap of $2b - 100m shares outstanding at $20 each. Book value is $900m in productive assets and $100m in cash. The company announces and pays a dividend of $1 per share. There are now 100m shares trading at (in the absence of news) $19, for a market cap of $1.9b, a book value of $900m, and a P/B ratio of 2.11. So the company, by paying the dividend, has increased its price to book ratio (thereby becoming less valuey/more growthy by some peoples' definition.) Compare this to the alternative scenario most often considered, a share buyback. The company buys 5m outstanding shares at an average price of $20, for a total outlay of the same $100m. Assuming constant earnings, and again, in the absence of news, no change in P/E ratio, the company now has 95 million shares outstanding, valued at $21.05, for an unchanged market cap of $2b versus the new $900m book value, leading to a P/B ratio of 2.22. Weird, huh?

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by triceratop » Wed Jun 20, 2018 9:12 am

grabiner wrote:
Mon Jun 18, 2018 10:52 pm
nedsaid wrote:
Mon Jun 18, 2018 8:29 am
You would expect the price of a stock to drop by the amount of the dividend on ex-dividend day. There are other things at play here though. Good news could boost the stock price even with the announced dividend. In any case, the price is lower than it would have been if there had been no dividend announcement.
But the reason for this expectation is that investors pay prices based on expected returns. If a stock will pay a $2 dividend today, then anyone holding the stock today will hold a share of stock and $2 in cash tomorrow. Therefore, if investors expect the stock to be worth $100 tomorrow, they should pay $102 for the stock today.

The reported "change" in the stock market tables accounts for this; if the stock closes at $102 today, and $101 tomorrow, this will be reported as a gain of $1, not a loss. (And it is a gain; someone who buys for $102 today and sells for $101 tomorrow makes a $1 profit including the dividend.)
This is what the rational economic actor does. This creature is something of a spherical cow, and it’s true to first order.

One of my favorite recent papers is “Reconsidering Returns” which shows US cows are not really spherical, but more like spheroidal, because we tend to look at price indices rather than total return.

See: https://papers.ssrn.com/sol3/papers.cfm ... id=3039507
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by ryman554 » Wed Jun 20, 2018 9:20 am

grabiner wrote:
Mon Jun 18, 2018 10:52 pm
nedsaid wrote:
Mon Jun 18, 2018 8:29 am
You would expect the price of a stock to drop by the amount of the dividend on ex-dividend day. There are other things at play here though. Good news could boost the stock price even with the announced dividend. In any case, the price is lower than it would have been if there had been no dividend announcement.
But the reason for this expectation is that investors pay prices based on expected returns. If a stock will pay a $2 dividend today, then anyone holding the stock today will hold a share of stock and $2 in cash tomorrow. Therefore, if investors expect the stock to be worth $100 tomorrow, they should pay $102 for the stock today.

The reported "change" in the stock market tables accounts for this; if the stock closes at $102 today, and $101 tomorrow, this will be reported as a gain of $1, not a loss. (And it is a gain; someone who buys for $102 today and sells for $101 tomorrow makes a $1 profit including the dividend.)
I know that's how it's supposed to work.

I see that's how it works for mutual funds, but those are just piles of cash invested and a percentage of that cash gets removed ex-dividend, so the nav must go down by that percentage..

Since nobody sets prices for any stock, and a lot of folks out there don't even know it's ex-dividend day, how, exactly, does the price suddenly change? Has anybody gone to the trouble to plot out and see the *actual* effect on stock prices ex-dividend day to see if there is (or rather was - HFT takes care of this) any alpha there? You get enough data points and the central limit theorem will tell you if this is what actually happens.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by Pajamas » Wed Jun 20, 2018 9:24 am

ryman554 wrote:
Wed Jun 20, 2018 9:20 am
Since nobody sets prices for any stock, and a lot of folks out there don't even know it's ex-dividend day, how, exactly, does the price suddenly change?
Yes, someone does set prices for stocks, or at least quotes the prices, and manages historical price data. The prices quoted are adjusted.

https://www.investopedia.com/articles/s ... ations.asp

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by alex_686 » Wed Jun 20, 2018 9:32 am

Walkure wrote:
Wed Jun 20, 2018 8:55 am
2. Say a given stock trades at a P/B of 2. It has a book value of $1b and a market cap of $2b - 100m shares outstanding at $20 each. Book value is $900m in productive assets and $100m in cash. The company announces and pays a dividend of $1 per share. There are now 100m shares trading at (in the absence of news) $19, for a market cap of $1.9b, a book value of $900m, and a P/B ratio of 2.11. So the company, by paying the dividend, has increased its price to book ratio (thereby becoming less valuey/more growthy by some peoples' definition.) Compare this to the alternative scenario most often considered, a share buyback. The company buys 5m outstanding shares at an average price of $20, for a total outlay of the same $100m. Assuming constant earnings, and again, in the absence of news, no change in P/E ratio, the company now has 95 million shares outstanding, valued at $21.05, for an unchanged market cap of $2b versus the new $900m book value, leading to a P/B ratio of 2.22. Weird, huh?
No, not so weird.

In the first case you have increased leveraged. Fewer assets, same liabilities. The higher the leverage the more "growth" a company is.

In the second case you are misframing things. First, market cap drops by 5m. Price of the shares remains the same, but now there are fewer shares. Price * shares = market cap. Fewer shares, lower market cap. Second, earnings remains the same. However, it is is now divided by fewer shares. P/E ratio increases.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by ryman554 » Wed Jun 20, 2018 9:49 am

Pajamas wrote:
Wed Jun 20, 2018 9:24 am
ryman554 wrote:
Wed Jun 20, 2018 9:20 am
Since nobody sets prices for any stock, and a lot of folks out there don't even know it's ex-dividend day, how, exactly, does the price suddenly change?
Yes, someone does set prices for stocks, or at least quotes the prices, and manages historical price data. The prices quoted are adjusted.

https://www.investopedia.com/articles/s ... ations.asp
That really doesn't answer my question, and, while having dividend-adjusted prices is nice, doesn't get to the heart of the matter on how the bid/ask prices change from 1600EST ex-dividend day to 0900EST the next day. There are statistics to be had to see if the price people actually buy things for actually changes due to the dividend payout. Maybe it would help if I actually knew how the stock price/bid price/ask price are actually determined in real time in general.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by Pajamas » Wed Jun 20, 2018 10:05 am

ryman554 wrote:
Wed Jun 20, 2018 9:49 am

That really doesn't answer my question, and, while having dividend-adjusted prices is nice, doesn't get to the heart of the matter on how the bid/ask prices change from 1600EST ex-dividend day to 0900EST the next day. There are statistics to be had to see if the price people actually buy things for actually changes due to the dividend payout. Maybe it would help if I actually knew how the stock price/bid price/ask price are actually determined in real time in general.
I don't understand exactly what you are asking. Yes, the price people actually buy things for changes when the stock goes ex-dividend.

Does this help answer your question?

https://www.investopedia.com/university ... ading3.asp

It's part of this series:

https://www.investopedia.com/university ... ictrading/

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by Walkure » Wed Jun 20, 2018 12:00 pm

alex_686 wrote:
Wed Jun 20, 2018 9:32 am
In the second case you are misframing things. First, market cap drops by 5m. Price of the shares remains the same, but now there are fewer shares. Price * shares = market cap. Fewer shares, lower market cap. Second, earnings remains the same. However, it is is now divided by fewer shares. P/E ratio increases.
There's still an oddity, then. If the dividend-paying company price drops to $19 and EPS holds steady, the P/E decreases. But a buyback of the same amount with constant earnings and share price distributed over fewer shares causes a P/E increase. That seems to violate some aspect of the EMH with respect to what investors in a given market are willing to pay for a dollar of earnings.

Whoops! Just reread and edited - Same earnings with fewer shares increases EPS. P/E does decrease in both cases. Phew!

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by ryman554 » Wed Jun 20, 2018 2:14 pm

Pajamas wrote:
Wed Jun 20, 2018 10:05 am
ryman554 wrote:
Wed Jun 20, 2018 9:49 am

That really doesn't answer my question, and, while having dividend-adjusted prices is nice, doesn't get to the heart of the matter on how the bid/ask prices change from 1600EST ex-dividend day to 0900EST the next day. There are statistics to be had to see if the price people actually buy things for actually changes due to the dividend payout. Maybe it would help if I actually knew how the stock price/bid price/ask price are actually determined in real time in general.
I don't understand exactly what you are asking. Yes, the price people actually buy things for changes when the stock goes ex-dividend.

Does this help answer your question?

https://www.investopedia.com/university ... ading3.asp

It's part of this series:

https://www.investopedia.com/university ... ictrading/
Thanks for the link.

So, the market maker *should* change the price to (closing price day N-1) - (dividend per share). But do they really? Because they don't *have* to. They can always sell to an ignorant investor who doesn't know that the dividend was recorded the day before. Assuming an efficient market, it's clear the price would fall just as you say. But is the market really that efficient?

The real reason I ask is that, for years tracking one stock, I never noticed the price move ex-dividend. It was a 1%ish per quarter dividend, so you would think I'd see a trend 4 times a year. But,

The data I would like to see (and I'm not sure it's the *correct* data) is the price (closing, median, ???) of stock the day before ex-div and the price of the stock the day after ex-div. Yes, this is confounded by market movements, so it would need to be over many stocks over many years to see the median drop really is the dividend value.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by lm » Wed Jun 20, 2018 2:48 pm

I have a related question on this topic: how does the payments of dividends affect stock indices? For example, if all 30 companies represented in the Dow Jones index paid a 2% dividend on the same day, would the Dow drop by 2%?

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by triceratop » Wed Jun 20, 2018 2:52 pm

lm wrote:
Wed Jun 20, 2018 2:48 pm
I have a related question on this topic: how does the payments of dividends affect stock indices? For example, if all 30 companies represented in the Dow Jones index paid a 2% dividend on the same day, would the Dow drop by 2%?
In the case of the DJIA, yes.

However, not all stock indices are stock price indices. A total return stock index would not be affected by such a scenario; for example the German DAX as typically quoted is a total return index. To quote the DAX factsheet:
It is one of the few major country indices that also takes dividend yields into account, thus fully reflecting the actual performance of an investment in the index portfolio.
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by Pajamas » Wed Jun 20, 2018 2:53 pm

ryman554 wrote:
Wed Jun 20, 2018 2:14 pm
So, the market maker *should* change the price to (closing price day N-1) - (dividend per share). But do they really? Because they don't *have* to.
What makes you think that they don't have to adjust the opening quoted price for dividends?

Stocks often open lower or higher than the previous day's closing price and that might obscure or exaggerate the adjustment, but the adjustments are made.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by lm » Wed Jun 20, 2018 3:14 pm

triceratop wrote:
Wed Jun 20, 2018 2:52 pm
lm wrote:
Wed Jun 20, 2018 2:48 pm
For example, if all 30 companies represented in the Dow Jones index paid a 2% dividend on the same day, would the Dow drop by 2%?
In the case of the DJIA, yes.
Interesting; thank you very much. I assume the same would be true for a market-cap based index like the S&P 500?

Also, a follow-up a question: let's say every investor automatically reinvests dividends. Would the price of a stock (or a stock index, or an index mutual fund) then be unaffected by dividend payments?

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by triceratop » Wed Jun 20, 2018 3:16 pm

lm wrote:
Wed Jun 20, 2018 3:14 pm
triceratop wrote:
Wed Jun 20, 2018 2:52 pm
lm wrote:
Wed Jun 20, 2018 2:48 pm
For example, if all 30 companies represented in the Dow Jones index paid a 2% dividend on the same day, would the Dow drop by 2%?
In the case of the DJIA, yes.
Interesting; thank you very much. I assume the same would be true for a market-cap based index like the S&P 500?

Also, a follow-up a question: let's say every investor automatically reinvests dividends. Would the price of a stock (or a stock index, or an index mutual fund) then be unaffected by dividend payments?
The German DAX is also a free-float market cap based index. The relevant difference is solely whether it is a price- or total-return-based index.

In case you can't tell, I think the S&P500 is a rather poor performance index, just as the DJIA is. ;)
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by ryman554 » Thu Jun 21, 2018 9:21 am

Pajamas wrote:
Wed Jun 20, 2018 2:53 pm
ryman554 wrote:
Wed Jun 20, 2018 2:14 pm
So, the market maker *should* change the price to (closing price day N-1) - (dividend per share). But do they really? Because they don't *have* to.
What makes you think that they don't have to adjust the opening quoted price for dividends?
Because I can't get my head around what you seem to be saying "there is someone out there who sets prices, so they can adjust for dividends".

I have it my head that prices are being continuously set by people who want to buy and want to sell. How that works, I don't really know, but I am finding it hard to accept (meaning I can't imagine it, not that it's not true, so I really need some help here) that it's done by "one guy" that can do the dividend adjustment when needed. Or by many guys with a rule that says you have to do it. Absent a rule, dividend adjustments for individual equities become an assumption or a suggestion; no different than something like "as EPS grows, so too should the stock price."

I guess I just don't understand how prices are really set, and the mechanism by which they really change, during trading hours. Maybe once I learn that, I can apply to the cases of dividends and I stop looking like a fool.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by alex_686 » Thu Jun 21, 2018 9:30 am

ryman554 wrote:
Thu Jun 21, 2018 9:21 am
I have it my head that prices are being continuously set by people who want to buy and want to sell. How that works, I don't really know, but I am finding it hard to accept (meaning I can't imagine it, not that it's not true, so I really need some help here) that it's done by "one guy" that can do the dividend adjustment when needed. Or by many guys with a rule that says you have to do it. Absent a rule, dividend adjustments for individual equities become an assumption or a suggestion; no different than something like "as EPS grows, so too should the stock price."

I guess I just don't understand how prices are really set, and the mechanism by which they really change, during trading hours. Maybe once I learn that, I can apply to the cases of dividends and I stop looking like a fool.
First, we can look at the empirical evidence. Stock do drop pretty much by the dividend amount. Not exactly - but the differences between the close and open between ex-dividend dates are about the same differences between open and close on non-ex-dividend dates. IIRC, dividends can explain 99% of the behavior between close and opening.

Secondly, the reason why it drops. As you say, lots of traders trading continuously. Let's say stocks did not drop as much as it should. Then all I would have to do is buy the stock before ex-div date, pick up the dividend, and sell the next day. Free money! This does not happen. See point 1. Traders are tool smart to be fooled by such a simple trick.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by Pajamas » Thu Jun 21, 2018 11:38 am

ryman554 wrote:
Thu Jun 21, 2018 9:21 am

Because I can't get my head around what you seem to be saying "there is someone out there who sets prices, so they can adjust for dividends".

I didn't say they "can" adjust them, I said they "are" adjusted. I don't know anything about the actual process or the software that undoubtedly does it these days but it's not a matter of whim.

Once the stock goes ex-dividend, it trades without the right to receive the upcoming dividend and the price is adjusted downwards to reflect that when it does because the prior owner will received that dividend even though they no longer hold the stock.

Honestly, it is all very abstract these days. No stock certificates, no green currency, no physical stock exchange in many cases, just a bunch of computers and digital accounts visible on a screen or monitor. Only when you whip out a credit card to buy something does it all become something you can touch.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by ryman554 » Thu Jun 21, 2018 5:08 pm

Thank you all for the responses so far.
alex_686 wrote:
Thu Jun 21, 2018 9:30 am
First, we can look at the empirical evidence. Stock do drop pretty much by the dividend amount. Not exactly - but the differences between the close and open between ex-dividend dates are about the same differences between open and close on non-ex-dividend dates. IIRC, dividends can explain 99% of the behavior between close and opening.
See, that's the data I was asking for. Can you point me to a dataset which shows this?
alex_686 wrote:
Thu Jun 21, 2018 9:30 am
Secondly, the reason why it drops. As you say, lots of traders trading continuously. Let's say stocks did not drop as much as it should. Then all I would have to do is buy the stock before ex-div date, pick up the dividend, and sell the next day. Free money! This does not happen. See point 1. Traders are tool smart to be fooled by such a simple trick.
Yes, I see this and the logic. But are all traders that smart? Does it only take one to break this "free money" assumption? Or does it just take one good trader to ensure enforce it? One might also argue that the stock likely (but not assuredly) has another dividend coming in 3/6/12 months. Isn't that worth something? Or is the "perpetual effective dividend rate" always built into the price of the equity in much the same way as it is to a bond? Of course, dividend yield does not determine the equity price, so it can't be the whole story.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by CardinalRule » Thu Jun 21, 2018 11:59 pm

One thing that I have noticed repeatedly - early exercises of in-the-money call options on the night before the ex-dividend date. This most often happens when the call I have written has an expiration that is just a few days away (i.e., there is not much time value).

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by JustinR » Fri Jun 22, 2018 3:22 am

What happens if the ex-dividend day is on a Saturday? The price drops on Monday?

Edit: never mind the date wasn't on a Saturday.
Last edited by JustinR on Fri Jun 22, 2018 1:29 pm, edited 1 time in total.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by alex_686 » Fri Jun 22, 2018 7:43 am

JustinR wrote:
Fri Jun 22, 2018 3:22 am
What happens if the ex-dividend day is on a Saturday? The price drops on Monday?
Ex-div is not set by the company issuing the dividend, it is sort of set up by the exchange. For stocks, which settle T+3 or Trade plus 3 days, ex-div is 3 trading days before "Record Date". Record date is what really drives the process.

I have seen this catch more than one person who donated or gifted their stock after the ex-div date but before the record date. Then they can't figure out why they did not get their dividends. Exercised options also have a T+1 settle date which have also caught people out.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by alex_686 » Fri Jun 22, 2018 7:56 am

ryman554 wrote:
Thu Jun 21, 2018 5:08 pm
See, that's the data I was asking for. Can you point me to a dataset which shows this?
I will see what I can find. The study I read is fairly old. I really don't expect anything to have changed much since the state of the art and computerized trading have advanced.
ryman554 wrote:
Thu Jun 21, 2018 5:08 pm
Yes, I see this and the logic. But are all traders that smart? Does it only take one to break this "free money" assumption? Or does it just take one good trader to ensure enforce it? One might also argue that the stock likely (but not assuredly) has another dividend coming in 3/6/12 months. Isn't that worth something? Or is the "perpetual effective dividend rate" always built into the price of the equity in much the same way as it is to a bond? Of course, dividend yield does not determine the equity price, so it can't be the whole story.
In theory you only need one trader. However, this is a classic textbook problem that most finance majors have to do. And they don't have to be that smart. This is so common and easy that Bloomberg has a function to calculate everything - including profits - and will almost fill out the trade ticket for you. Now here comes the fun stuff.
CardinalRule wrote:
Thu Jun 21, 2018 11:59 pm
One thing that I have noticed repeatedly - early exercises of in-the-money call options on the night before the ex-dividend date. This most often happens when the call I have written has an expiration that is just a few days away (i.e., there is not much time value).
So a option's value is based on volatility and the time value of money. This is a arbitrage trade that you are seeing. Math is fun. Another fun thing is that you can use 2 different options to figure out the market expectations of future dividends and arbitrage that as well. Once again Bloomberg has a function for this and will basically fill out a trade ticket for you. Same is true for futures, forwards, swaps, etc.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by grayfox » Fri Jun 22, 2018 9:09 am

VYMI went ex-dividend today. I tracked the Prices, Bids and Asks just before and just after the market opened.

Summary: Vanguard adjusted the reported Last Trade and Previous close down by 0.94770, the amount of the dividend, to show 61.92, instead of the actual closing price of 62.87
However, the opening price was determined through normal price discovery as Bids and Asks converged to an opening price of 62.76
The opening price was only down 0.11, not 0.94770 as theory would have predicted.

See this viewtopic.php?p=3984263#p3984263

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by JustinR » Fri Jun 22, 2018 12:54 pm

alex_686 wrote:
Fri Jun 22, 2018 7:43 am
JustinR wrote:
Fri Jun 22, 2018 3:22 am
What happens if the ex-dividend day is on a Saturday? The price drops on Monday?
Ex-div is not set by the company issuing the dividend, it is sort of set up by the exchange. For stocks, which settle T+3 or Trade plus 3 days, ex-div is 3 trading days before "Record Date". Record date is what really drives the process.

I have seen this catch more than one person who donated or gifted their stock after the ex-div date but before the record date. Then they can't figure out why they did not get their dividends. Exercised options also have a T+1 settle date which have also caught people out.
Wait, if you sell after the exdiv day you should get the dividend right? I don't understand why that person donating theirs wouldn't get the dividend. The record day is when it settles but the exdiv day determines who gets the dividend. Isn't that its entire purpose?

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by triceratop » Fri Jun 22, 2018 12:57 pm

alex_686 wrote:
Fri Jun 22, 2018 7:43 am
JustinR wrote:
Fri Jun 22, 2018 3:22 am
What happens if the ex-dividend day is on a Saturday? The price drops on Monday?
Ex-div is not set by the company issuing the dividend, it is sort of set up by the exchange. For stocks, which settle T+3 or Trade plus 3 days, ex-div is 3 trading days before "Record Date". Record date is what really drives the process.
Just for clarification, stocks (and ETFs) are now (entirely?) T+2 settlement.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by alex_686 » Fri Jun 22, 2018 3:04 pm

JustinR wrote:
Fri Jun 22, 2018 12:54 pm
Wait, if you sell after the exdiv day you should get the dividend right? I don't understand why that person donating theirs wouldn't get the dividend. The record day is when it settles but the exdiv day determines who gets the dividend. Isn't that its entire purpose?
Triceratop, thanks for the correction.

If you sell it takes 2 days for the trade to settle. You don't actually own it until the end of the 2 days, so you are not entieled to the dividend.

If you gift it then it happens as fast as your broker can process the gift, which is unusually overnight. So the receiver of the gift is the actual record holder on "Record Date".

One of my first jobs was schooling brokers on this issue. Proffionsally often get tripped up by this. It is a technical point that has very limited applications. I mean, how often do you get or get rid of stock by some other meanings than trading?

Thus ex-div date is an artifact of the time for trades to settle. The only way that Saturday could be a ex-div date is if it were a trading day. Which in the past it was and in some countries still is. And overnight trading does not count becuase that is really part of the next bussines day.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by oldcomputerguy » Fri Jun 22, 2018 3:11 pm

ryman554 wrote:
Wed Jun 20, 2018 9:20 am
Since nobody sets prices for any stock, and a lot of folks out there don't even know it's ex-dividend day, how, exactly, does the price suddenly change?
As I understand it, one component of stock pricing is book value of the company (by virtue of the fact that owning a share of the stock is in actuality owning a piece of the company itself). Among the assets that comprise a company's book value is cash on hand. When a dividend is paid to stockholders, cash on hand decreases, therefore book value of the company decreases, therefore the portion of the share price connected to book value also decreases.

Perhaps this is overly simplistic, but it makes sense.
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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by JustinR » Fri Jun 22, 2018 8:01 pm

alex_686 wrote:
Fri Jun 22, 2018 3:04 pm
JustinR wrote:
Fri Jun 22, 2018 12:54 pm
Wait, if you sell after the exdiv day you should get the dividend right? I don't understand why that person donating theirs wouldn't get the dividend. The record day is when it settles but the exdiv day determines who gets the dividend. Isn't that its entire purpose?
If you sell it takes 2 days for the trade to settle. You don't actually own it until the end of the 2 days, so you are not entieled to the dividend.
Still don't get what you're saying. If you sell it of course you don't own it two days later.

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Re: Ex-dividend days: Is there typically anything out of the ordinary?

Post by triceratop » Fri Jun 22, 2018 8:12 pm

JustinR wrote:
Fri Jun 22, 2018 8:01 pm
alex_686 wrote:
Fri Jun 22, 2018 3:04 pm
JustinR wrote:
Fri Jun 22, 2018 12:54 pm
Wait, if you sell after the exdiv day you should get the dividend right? I don't understand why that person donating theirs wouldn't get the dividend. The record day is when it settles but the exdiv day determines who gets the dividend. Isn't that its entire purpose?
If you sell it takes 2 days for the trade to settle. You don't actually own it until the end of the 2 days, so you are not entieled to the dividend.
Still don't get what you're saying. If you sell it of course you don't own it two days later.
If you sell the etf then you still own the etf on T+1. If there is a dividend with a record date of T+1 then you receive that. If you donate shares the settlement is different (like T+0 the way I read it).
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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