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THE EX-DIVIDEND DAY STOCK PRICE BEHAVIOR: FTSE 100 of the London Stock Exchange
Umeå University, Faculty of Social Sciences, Umeå School of Business.
Umeå University, Faculty of Social Sciences, Umeå School of Business.
2007 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

In this thesis, we have analyzed the ex-dividend stock price behavior in the London Stock Exchange to see if the stock prices really drop by the same amount as the dividend on the ex-dividend day. Our sample data covers 80 FTSE100 companies of the London stock exchange for the period 2001 to 2006.

To answer the research question: Do returns on the London Stock Exchange act in accordance with the efficient market hypothesis on the ex-dividend day? We used a deductive approach and test four hypothesis. The study was carried out by comparing the actual value of the raw price ratio, market adjusted price ratio, raw price drop and market adjusted price drop to their theoretical values. The difference was tested for significance using the one sample t-test.

The results showed that there are significant differences in the observed figures from their theoretical or expected values. The observed raw price ratio is higher than the expected value of 1, implying that the stock price on the ex-dividend day drops by an amount that is lower than the dividend paid. Similarly, the market adjusted raw price ratio is also higher than the expected value of 1. The raw price drop and market adjusted price drop are lower than the dividend yield, indicating again that the stock price drops by an amount that is lower than the dividend paid.

Our results indicated that the null hypotheses stated are rejected since the drop in the stock prices is not equal to the amount of the dividend on the ex-dividend day.

Place, publisher, year, edition, pages
Umeå: Handelshögskolan vid Umeå universitet , 2007. , 45 p.
Keyword [en]
Ex-dividend Day Behavior, Efficient Market Hypothesis
National Category
Business Administration
Identifiers
URN: urn:nbn:se:umu:diva-1229OAI: oai:DiVA.org:umu-1229DiVA: diva2:140525
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Available from: 2007-06-25 Created: 2007-06-25Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf