Ex-Dividend Day Behavior in the Absence of Taxes and Price Discreteness*
Khamis Al Yahyaee(School of Banking and Finance, University of New South Wales, Sydney, Australia)
Toan Pham(School of Banking and Finance, University of New South Wales, Sydney, Australia)
Terry Walter(Department of Accounting and Finance, Macquarie University , Sydney, Australia)

We examine the ex-dividend day behavior in a unique setting where (1) there are neither taxes on dividends nor on capital gains, (2) stock prices have been decimalized, (3) dividends are distributed annually, and (4) we have data that enable us to examine bid–ask bounce effects. In this economy, any price decline that is smaller than the dividends cannot be attributed to taxes and price discreteness. Like previous studies, we find that the stock price drops by less than the amount of dividends and there is a significant positive ex-day return. By examining abnormal volumes around the ex-dividend day, we find no evidence of short-term trading. We are able to account for our results using market microstructure models. When the impact of market microstructure is taken into account, the ex-dividend drop is not significantly different from the value of the dividend paid.

*We would like to thank John Graham, Bruce Grundy, Richard Heaney, Douglas Foster, Ravi Jain, Palani-Rajan Kadapakkam, and Keith Jakob. We also thank the participants at the 17th Asian FA/FMA Conference for their valuable comments.

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Implications for Asset Pricing Puzzles of a Roll-over Assumption for the Risk-Free Asset*
Geoffrey J. Warren(Russell Investments)

The equity risk premium and risk-free rate puzzles are largely resolved by combining persistent uncertainty over the long-term consumption growth rate with analysis of the risk-free asset on a ‘roll-over’ basis. Under these conditions, cash equivalents are evaluated as a multi-period investment strategy that hedges against adverse growth rate outcomes. The premium on the risky asset is raised and the risk-free rate lowered due to their respective relation with multi-period consumption risk. Historical average asset returns are matched at plausible risk aversion.

*This paper arises from the author’s doctorate, which was completed at the Australian Graduate School of Management at the University of NSW. The author benefited from some valuable comments, suggestions and encouragement from Chris Adam, Nicholas Bollen, Doug Foster, Lorenzo Garlappi, Shayne Gary, Bruce Grundy, Ron Guido, Richard Heaney, Terry O’Neill, Baljit Sidhu, Tom Rietz, Tom Smith, Garry Twite, and Kathy Walsh. The author also wishes to thank participants at the 2005 AFAANZ Conference and the 16th Asian Financial Association Conference, as well as FIRN for financial support to attend the latter.

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Is Liquidity Symmetric? A Study of Newly Listed Internet and Technology Stocks
David Michayluk（School of Finance and Economics, University of Technology, Sydney, NSW, Australia）
Karyn Neuhauser(State University of New York, Plattsburgh, School of Business and Economics, Plattsburgh, NY USA)

Imbedded in liquidity measures is an implicit assumption of symmetry. Although market microstructure models rely on this assumption, there may be directional pressure that creates differences in buy and sell liquidity. This paper develops methods of assessing asymmetric liquidity and empirically examines a sample of newly listed Internet and technology stocks that are hypothesized to be especially subject to asymmetry due to the rapid inflation and deflation of the Internet bubble. Evidence of asymmetric liquidity is observed and the level of asymmetry is found to change over time. These findings suggest that the assumption of symmetry is inconsistent with more precisely constructed market liquidity measures.

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Effect of Investor Category Trading Imbalances on Stock Returns*
David Colwell(School of Banking and Finance, University of New South Wales, Sydney, Australia)
Julia Henker(School of Banking and Finance, University of New South Wales, Sydney, Australia)
Terry Walter(Department of Accounting and Finance, Macquarie University, Sydney, Australia)

Trading is the mechanism of the economist’s ‘invisible hand,’ the means by which price discovery occurs. We use daily shareholdings data from the Australian equities clearinghouse to investigate the impact of the trading imbalances of investor categories on stock returns. Our evidence does not contradict the behavioral finance assumption that the trading of individual investors contributes to price discovery. Furthermore, we find that, while the trading of all investor categories Granger-causes returns, returns Granger-cause trading only for the individual investor category. That is, in the short term of up to 1 month, only individual investors engage in feedback trading.

*The authors gratefully acknowledge comments from Thomas Henker and Bruno Solnick and participants at the 2005 FMA meeting. The usual disclaimer applies.

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