THE EX-DIVIDEND DAY STOCK PRICE BEHAVIOR: FTSE 100 of the London Stock Exchange

This report evaluates the ex-dividend stock price behavior in the London Stock Exchange to find out if the share prices really drop by the same amount as the dividend on the ex-dividend day. The test data covers Eighty FTSE100 corporations of the London stock exchange for the period 2001 to 2006.

Research question: Do returns on the London Stock Exchange behave depending on the efficient market hypothesis on the ex-dividend day? We utilized a deductive strategy and test 4 hypothesis. The research was completed by reviewing the actual value of the raw price ratio, market adjusted price ratio, raw price drop and market adjusted price drop to their theoretical values. The difference was analyzed for significance using the one sample t-test. The outcomes indicated that there is major difference in the observed figures from their theoretical or expected values. The observed raw price ratio is greater than the expected value of 1, meaning that the stock price on the ex-dividend day falls by an amount which is less than the dividend paid….

Contents

1) INTRODUCTION
1.1 Problem background
1.2 Research Question
1.3 Purpose of the Study
1.4 Limitation
1.5 Disposition
2) METHODOLOGY
2.1 Choice of Subject
2.2 Perspective
2.3 Preconceptions
2.4 Underlying philosophy
2.5 Scientific Approach
2.6 Research Method
2.7 Hypothesis Testing
2.8 The Possibility of Making an Error
2.9 Collection of literature sources
2.10 Criticism of literature sources
3) THEORETICAL FRAMEWORK
3.1 Market Efficiency
3.1.1 Weak Form Efficiency
3.1.2 Semi-Strong Form of Efficiency
3.1.3 Strong Form of Efficiency
3.2 Dividends
3.2.1 Dates of Cash Dividend Payment
3.2.2 Ex-Dividend Day Effect
3.2.3 Clientele Effec
3.2.4 Dividend as a Signal
3.2.5 Trading Volume around the ex-dividend day
4) MAKING IT REAL
4.1 Background Information of the London Stock Exchange
4.2 Model Specification
4.3 Sample Data
5) EMPIRICAL FINDINGS AND ANALYSIS
5.1 Descriptive Statistics
5.2 Statistical test and Results
6) CONCLUSIONS, CREDIBILITY CRITERIA AND SUGGESTIONS FOR FURTHER STUDIES
6.1 Concluding Remarks
6.2 Credibility Criteria
6.2.1 Validity
6.2.2 Reliability
6.2.3 Generalization
6.3 Suggestions to Further Studies…

Source: Umea University

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THE EX-DIVIDEND DAY STOCK PRICE BEHAVIOR: FTSE 100 of the London Stock Exchange