An Examination of Stock Price Behavior And Trading Volume Around Ex-Dividend Day: Empirical Evidence From Pakistan

Abstract

The underlying study aims to examine the movement of stock price and trading volumes around ex–dividend dates in Pakistan Stock Exchange-listed companies for the period 2018 - 2020. We used standard event study research technique to investigate the presence of abnormal returns and trading volume. Lower drop off ratios are found and significant positive abnormal returns are reported on ex–dividend day. In addition, positive abnormal returns are found before the event day and negative abnormal returns are reported after the event day. Similarly, positive trading volumes are observed in pre and post-event windows. The results of abnormal returns and trade volumes surrounding ex–dividend day verify the existence of short-term trading evidence, which confirms the existence of dividend-capturing activities. The results of this study demonstrate that stock price behavior and volumes of trade around ex–dividend day are better explained by the short-term trading hypothesis.