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calculating ex dividend effects
How does one calculate the affect of a company going ex dividend on its stock price, in order to calculates its affect on an index?For example, if Vodafone went ex-div tomorrow, how would you calculate how much you would expect Vodafone and the FTSE 100 index to fall the next day ?Thanks
calculating ex dividend effects
Vod will fall by the amount of the div and the FTSE would fall by num of vod shares * div / Divisor
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calculating ex dividend effects
Sometimes the stock price drops slightly less than the dividend amount on the ex-date because of tax effects. There are lots of event studies in the finance journals which study this phenomenon.
calculating ex dividend effects
basically, the price drop depends on:- spread between the dividend tax rate and the capital gains tax rate for a particular stock [the so called "clientele effect" (Elton and Gruber, 70) - some investors prefer higher dividend stocks and others do not => market segmentation]- the possibility to economically trade around the dividend date (see michaely and vila...)among investors taxed differently on div and capital gains.