Is the Stock Dividend Ex-Day Effect Due to Market Microstructure?: Contrary Evidence from Korea

Manjeet S. Dhatt, Yong H. Kim and Sandip Mukherji

There is evidence of abnormal returns around stock dividend ex-days in the U.S. The existing explanations for this ex-day effect are based on trading regulations and practices in the U.S. market. Dhatt, Kim and Mukherji [3], however, find a similar ex-day effect for stock dividends in Japan, where the market microstructure is very different from the U.S. This paper examines the stock dividend ex-day effect in Korea, which also has a different trading environment than the U.S. The results show that there are significant abnormal ex-day returns for Korean stock dividends and the largest stock dividends have the highest abnormal returns. These findings provide further evidence that the ex-day effect is probably related to stock dividends themselves rather than being driven by market factors.