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Please use this identifier to cite or link to this item: http://hdl.handle.net/10400.5/2577

Title: An Arbitrage Model for the Stock Price Adjustment in the Dividend Period
Authors: Borges, Maria Rosa
Keywords: Dividend
Arbitrage
Market equilibrium
Transactions costs
Issue Date: 2007
Publisher: ISEG – Departamento de Economia
Citation: Borges, Maria Rosa. 2007. "An Arbitrage Model for the Stock Price Adjustment in the Dividend Period". Instituto Superior de Economia e Gestão - DE Working papers nº 9-2007/DE/CIEF
Series/Report no.: DE Working papers nº 9-2007/DE/CIEF;DE Working papers nº 9-2007/DE/CIEF
Abstract: Following a dividend distribution, investors expect the stock price to decrease on the ex-dividend day. With no market imperfections, the price decrease should exactly match the amount of the dividend, thus eliminating all opportunities for profitable arbitrage. Allowing for different taxes on dividends and on capital gains results in a stock price adjustment ratio different from one, but there is still a unique equilibrium. With a simple model, considering four types of investors, we show that the consideration of transaction costs results in multiple possible equilibria (equilibrium zone), defined by the arbitrage boundaries of each type of investors. We also show that trading activity by the different types of investors is reflected in abnormal trading volume.
URI: http://hdl.handle.net/10400.5/2577
ISSN: 0874-4548
Publisher version: https://aquila1.iseg.utl.pt/aquila/getFile.do?method=getFile&fileId=26480
Appears in Collections:CIEF - Documentos de Trabalho / CIEF - Working Papers
DE - Documentos de trabalho / Working Papers

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