Jennifer L. Koski

Who trades around the ex-dividend day? Evidence from NYSE audit file data

We analyze trading volume around ex-dividend days. We use NYSE audit file data to decompose total trading volume by trader type. These data permit us to directly test detailed hypotheses regarding the identity of traders around the ex-dividend day. We are able to distinguish between dividend-capture trading by taxable corporations and short-term trading by securities dealers. We find evidence of significant abnormal volume by securities dealers that is positively related to dividend yield and negatively related to transaction costs. We also document some abnormal trading volume consistent with corporate dividend-capture trading, but little evidence of tax-clientele trading.

A Microstructure Analysis of Ex-dividend Stock Price Behavior before and after the 1984 and 1986 Tax Reform Acts

This article extends ex-dividend research by explicitly modeling trading at bid and ask quotations. This refinement distinguishes between buying and selling for long-term investors and short-term dividend capture traders. It also explicitly incorporates the bid-ask spread and eliminates some potential measurement errors that may bias returns. Marginal conditions are tested during 1983 and 1988, periods that span the 1984 and 1986 Tax Reform Acts. Results for long-term investors are consistent with the elimination of favorable capital gains tax rates. At observed prices, tax-neutral short-term traders cannot profit. Corporate dividend capture traders face profit opportunities during 1983 that disappear by 1988. Copyright 1996 by University of Chicago Press.

Volatility, autocorrelations, and trading activity after stock splits ☆

Abstract We examine the relation between trading activity, return volatility, and autocorrelations around stock splits. Prior research shows substantial increases in volatility and number of small trades after splits. We show that these two effects are significantly positively related, and find evidence of bi-directional Granger causality. We also show that first-order serial autocorrelations decline significantly after splits. The decline in autocorrelations is significantly related to the change in the number of small trades. In contrast, for control samples of non-splitting firms, changes in volatility and autocorrelations are not associated with changes in small trades.

Ex-Dividend Profitability and Institutional Trading Skill

We use institutional trading data to examine whether skilled institutions exploit positive abnormal ex-dividend returns. Results show that institutions concentrate trading around certain ex-dates, and earn higher profits around these events. Dividend capture trades represent 6% of all institutional buy trades but contribute 15% of overall abnormal returns. Institutional dividend capture trading is persistent. Institutional ex-day profitability is also strongly cross-sectionally related to trade execution skill. The relation between execution skill and profits disappears around placebo, non-ex-days. Results suggest that skilled institutions target certain opportunities rather than benefiting uniformly through time. Furthermore, only skilled institutions can profit from dividend capture.

Who Wins When Exchanges Compete? Evidence from Competition after Euro Conversion

We examine whether euro conversion affected competition among European exchanges with respect to equity trading costs and volume. Results show that average trading costs decreased by almost 20% in Europe, and turnover increased 10%. Trading costs decreased or remained unchanged on all exchanges, but volume deteriorated in some markets and improved in others. These effects occurred on both euro and non-euro European exchanges. Our results suggest that euro conversion boosted competition for order flow among the exchanges. Paris, London and Milan were among the winners, while Madrid and Brussels lost volume. Both firm-specific and country-level factors contribute to these outcomes.

Do Upgrades Matter? Evidence from Trading Volume

Prior research examines the information content of credit rating changes using returns in stock, bond or credit default swap markets. Results are mixed, generally showing a significant reaction to downgrades with much weaker results for upgrades. We extend prior research using abnormal trading volume. Because trading volume is highly non-normally distributed (especially in the bond market), we derive a new nonparametric test statistic that can be used to test abnormal volume in other applications. Our results show significant abnormal volume in both stock and bond markets around upgrades and downgrades, consistent with the hypothesis that credit rating changes are informative.

The Information Content of Credit Rating Changes: Evidence from Trading Volume

Prior researchers document no significant abnormal returns around upgrades of credit ratings, suggesting upgrades convey no new information. These studies are limited by lack of data, liquidity screens, and ambiguous predictions. We extend the literature using trading volume. Because trading volume is highly non-normally distributed (especially bond market volume), we derive a new, more powerful nonparametric test statistic that can be used in other applications. Abnormal volume is significant in the stock and bond markets around upgrades and downgrades. Some abnormal volume is attributable to credit ratings-based regulations. Controlling for other effects, we find evidence that upgrade announcements contain information.

Euro Conversion and the Competition for Order Flow Among European Exchanges

We examine how euro conversion affected trading costs and volume in European equity markets. Euro conversion immediately changed tick sizes and price transparency, both of which could affect trading costs and relative trading volume. Longer-run, conversion could boost competition among exchanges. Using data from twelve European exchanges during 1998 and 1999 and the NYSE over the same period as a benchmark, we show that average trading costs decreased by 20% in Europe, and overall trading activity increased by 20%. Trading costs decreased or remained unchanged in all markets, but volume deteriorated in some markets and improved in others. These effects occurred on both euro and non-euro European exchanges. Our results are strongly consistent with the hypothesis that euro conversion boosted competition for order flow among the exchanges.