The ex-dividend day stock price behavior: Evidence from Pakistan

Abstract

The paper examines the ex-dividend day price behavior of the listed stocks in Karachi Stock Exchange for the period January 2009 to June 2010. During the examined period, there was no capital gain tax; however a 10% withholding tax applied on dividends. We use the standard event study methodology to examine the abnormal returns for days surrounding the ex-dividend day. The study reports a very low price drop ratios compared to their theoretical values. No significant excess returns are found on the ex-dividend day; however, significant positive abnormal returns are observed in the pre-event window and negative excess returns are observed in the post event window. The study provides evidence of short-term trading hypothesis surrounding the ex-dividend days on Karachi Stock Exchange. [ABSTRACT FROM AUTHOR]