Attention effect on the ex date: Evidence from Taiwan

1. Attention effect on the ex date: Evidence from Taiwan Shing-yang Hu and Yun-lan Tseng

2. Motivation • Ex-dividend day phenomenon • Stock returns are significantly positive • Campbell and Beranek (1955); Durand and May (1960). • Observed in many countries • Kato and Lowenstein (1995); Frank and Jagannathan (1998) • Observed for various distributions - cash dividends, stock dividends, and stock splits • Eades, Hess, and Kim (1984)

3. Motivation - Literature • Tax • Elton and Gruber (1970) • Microstructure • Bali and Hite (1998); Dubofsky (1992) • Small investor preference • Black (1986); Lakonishok and Lev (1987)

4. Contribution – New interpretation • Attention paid to ex dates • Higher publicity • Company announcement, Stock exchange • Brokerage houses and newspapers reports • Attract a higher demand from small investors to push up the price • High attention stocks gets more purchase from small investors

5. Contribution – New evidence • Provide cross-sectional evidence that, on ex dates, high attention stocks have • More newspaper reports (publicity) • More purchase from small investors • High returns

6. Contribution – New evidence • Measures of attention • Distribution rate • Turnover • Six-month period before the ex date • Market-to-book value of equity • Growth in the number of small shareholders

7. Contribution – New evidence • Provide the direct link between repots, small investors purchase, and ex-date returns

8. Data - Sample • 1999 to 2005 • All stock dividend distributions from companies listed on the Taiwan Stock Exchange (398) • Includes nontaxable (138), taxable (123), and mixed distributions (137) • Excludes distributions that are combined with a cash dividend, a rights offering, or an employee stock bonus

9. Data – Media reports • Search for the keyword “ex dividend” in the InfoTimes database. • Covers news reported by the China Times Group • Newspapers report 70 (less than 20%) events over the period -9 to 0 • 40 ex dates are reported

10. Data –Order imbalance of small investors • Definition of small investors • Daily order value < NT$200,000 • Definition of order imbalance • (buy-sell)/(buy+sell) • Aggressive orders • For orders submitted before the market opens • Buy (sell) order is aggressive if its limit price is higher (lower) than the closing price of the previous day adjusted for the distribution. • For orders that arrive after the opening • Buy orders is aggressive if its limit price is higher than the prevailing best ask • Sell order is aggressive if its limit price is lower than the best bid

11. Data –Standardized abnormal order imbalance

12. Data – abnormal return , t = -50,…,-6.

13. Results – Media reports

14. Results – Small investor OIB

15. Results – Abnormal return

16. Connections between attention and return Et-1(rit) = a Et-1(Ait) Et-1(rit) = b1 DISTi + b2 TURNi + b3 M/Bi + b4 SSHi Et-1(Ait) = c1 DISTi + c2 TURNi + c3 M/Bi + c4 SSHi Nonlinear restrictions Overidentifying restrictions E[DISTi(ri– aAi)] = E[TURNi(ri– aAi)] = E[M/Bi(ri– aAi)] = E[SSHi(ri– aAi)] = 0.

17. Results – Connection

18. Results – Institution OIB

19. Results – Large investor OIB

20. Results – Large investor OIB

21. Results – Small investor OIB

22. Results – Alternative hypothesis

23. Results – Annual regression