The behavior of share prices around ex-dividend days has been the subject of considerable theoretical and empirical research for nearly 50 years. Prior empirical studies document consistently that, on average, stock price falls less than the dividend amount on the ex- dividend day, giving rise to positive abnormal returns on the ex-day. However, after so many years of debate among academics, no consensus has been reached regarding the main drivers of the pricing anomaly on the ex-dividend day. The “tax clientele hypothesis’, the “short term arbitrage and transaction cost hypothesis” and mainly, two market microstructure hypotheses, the “tick size hypothesis” and the “bid-ask bounce hypothesis” attempt to explain the empirical inefficiency of the price drop on the ex-dividend day.
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