Buying Pressure & Liquidity Disbalances Prior to Ex-Dividend Days as Drives of the Dividend Premium

Student: Sivkova Anna

Supervisor: Sergey Victorovich Gelman

Faculty: International College of Economics and Finance

Educational Programme: Financial Economics (Master)

Year of Graduation: 2016

This paper is aimed to explore one of the asset price abnormalities; that are abnormal returns and change in liquidity measures around regular, predictable events – ex-dividend days. Several hypotheses were tested that return premium is a result of an underlying risk that appears when market maker changes the bid-ask spread and the speed at which ask prices rise and bid prices fall as order size increases. Methodologically the work is done by panel data analysis with fixed effect and SUR errors estimation. The following results were obtained: no additional return before ex-dividend day was found; liquidity measures (bid-ask spread, order slopes) robustly affects stock returns; bid-ask spread widens before ex-dividend date while slopes do not change (a parallel shift); volume in ex-dividend date indeed increases.

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