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The price impact of the disposition effect on the ex-dividend day of NYSE and AMEX common stocks

2014; Taylor & Francis; Volume: 14; Issue: 4 Linguagem: Inglês

10.1080/14697688.2014.891759

1469-7696

Vassilis Efthymiou, George N. Leledakis,

Housing Market and Economics

Abstract We empirically test whether the disposition effect has an asymmetrical impact on the price adjustment on the ex-dividend day of common stocks listed in NYSE and AMEX during the 2001–2008 period. We find that stocks with accrued gains have a greater ex-day price drop ratio (PDR) than stocks with accrued losses. We also find a positive relationship between the PDR and the capital gains overhang that has significant explanatory power over the cross-sectional variability of the PDR. Moreover, the capital gains overhang seems to explain part of the time variation of the PDR for a particular stock that can be a winner or loser at different times. We attribute our results to the disposition effect because active (limited) selling by holders of winning (losing) stocks will most likely accelerate (restrain) the downward price adjustment on the ex-dividend day. Keywords: Disposition effectEx-dividend dayCapital gains overhangPrice drop ratioJEL Classification: G12G14G35 Acknowledgments The authors thank Hersh Shefrin (Editor) and two anonymous referees for their valuable comments and suggestions. We also appreciate helpful comments from Kyriakos Chousakos, Ian Davidson, Efthimios Demirakos, John Doukas, Konstantinos Drakos, Athanasios Episcopos, Annita Florou, Dimitrios Ghikas, Daniel Giamouridis, George Papaioannou, Leonidas Rompolis, Spyros Skouras, Stavros Thomadakis, Nickolaos Travlos, Andrianos Tsekrekos, Daniel Wolfenzon, and participants at the 2010 European Financial Management Association (EFMA) meetings, the 2010 European Economics and Finance Society (EEFS) conference, and the 2011 International Atlantic Economic (IAES) conference. The authors greatly acknowledge the financial support of the Athens University of Economics and Business Research Center (EP-1682-01). All remaining errors and omissions are our own.