Talk:Ex-dividend date

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Contents 1 Automatic price decrease? 2 Reversion explanation 3 Merge 4 Confustion about fractions of a day

[edit] Automatic price decrease?

Regarding this paragraph: "When the market opens on the ex-dividend date, the exchanges automatically decrease the price of the stock by the amount of the dividend. This is done because the dividend payout will decrease the value of the company, as it comes directly from the company's reserves."

This seems highly doubtful. The market never automatically adjusts the price of any stock except in the case of a stock split.

It may be that investors are willing to pay less for a stock, thus the price goes down on the ex-dividend date. But many stocks continue to go up on the ex-dividend date as well. I don't think there is anything automatic about it. --scottjduffy

My experience (U. S.) is with trading preferred stock and similar securities, which have large dividends. If the expected drop doesn't occur, it pretty much always means I have the wrong ex-dividend date. Here is a quote from this website: "Specialists will otherwise automatically reduce all orders below the market by the amount of a cash dividend on the ex-dividend date." Art LaPella 21:00, 29 March 2006 (UTC)

I agree with scottjduffy: prices on the exchange are established by supply and demand, not by declaration on the part of the exchange. Anomalocaris 03:32, 11 March 2007 (UTC)

In the long run, of course prices are established by supply and demand. I and my reference are talking about what changes at the moment the market opens on the ex-dividend date. The last of the main article's 3 external links is an additional reference: it says "The price of the stock is adjusted downward on the ex-date so that the amount of the distribution is reflected in the current stock price." This is most noticeable in the case of a slowly trading, large dividend stock such as many older preferred stocks. Art LaPella 03:59, 11 March 2007 (UTC)

In the short run, of course, prices are also established by supply and demand, including the moment the market opens on the ex-dividend date. If there has been unexpected good news following the previous close, the stock might open above rather than below the previous closing price, even though buyers of the stock on the ex-dividend date don't get the dividend. I don't consider that Nasdaq article' statement to be the final word on this subject for three reasons: because of its imprecise language, because it is now almost seven years old, because it doesn't apply to stocks outside of Nasdaq. Anomalocaris 18:04, 11 March 2007 (UTC)

Yes, good news can change the bid and ask price by more than the dividend. But this is rare in the case of the preferred stocks I'm emphasizing. So these preferreds are the best test case to demonstrate what I'm talking about, and isolate this ex-dividend effect from others. I've often observed the automatic drop on the ex-dividend date.

More quotes: "Certain orders on the specialist's book are reduced when a stock goes ex-dividend, and these are detailed in the following paragraphs. All orders entered below the market are reduced on the ex-date - that is, the first date on which the new owner of stock does not qualify for the next dividend. On the ex-date, the price of the stock drops by the amount of the distribution. Orders reduced include buy limits, sell stops and sell stop limits." [1] "Open stop orders to sell and stop limit orders to sell are reduced in the same way as open limit buy orders." [2] "...all the orders on the books of specialists in American markets are reduced by the amount of the dividend when a stock goes ex-dividend." [3] "Do Not Reduce (DNR) Stipulation added to a buy or sell order instructing a broker not to decrease the limit, stop, or stop-limit price orders by the amount of the cash dividend on the ex-dividend date. When a stock goes ex-dividend, its price is usually reduced by the amount of the dividend" [4] "...NYSE rule 118 governing the ex-day adjustment of open limit orders to buy stock. This rule requires specialists to reduce open limit orders to buy stock by the dividend amount on the ex-dividend day". [5] Art LaPella 22:45, 11 March 2007 (UTC)

The sentence under discussion in this Wikipedia article is "When the market opens on the ex-dividend date, the exchanges automatically decrease the price of the stock by the amount of the dividend." A more accurate statement might be something like this: "After the close on the day before the ex-dividend date and before the open on the ex-dividend date, all open good-until-canceled limit, stop, and stop limit orders are automatically reduced by the amount of the dividend, except for orders that the customer indicated 'Do Not Reduce.'" It is open customer orders that are reduced, not the price of the stock itself.Anomalocaris 05:55, 12 March 2007 (UTC)

That sentence is probably better, although the open customer orders and specialists determine the bid and ask prices, and therefore the prices of executions after that. Art LaPella 17:48, 12 March 2007 (UTC)

It may depend on which exchange you are using. On ASX, open orders are cancelled when a stock goes ex dividend. Horatio 01:14, 17 September 2007 (UTC)

[edit] Reversion explanation

I removed this sentence: "For large dividends, the ex-dividend date is typically after the record date." In my experience, for large dividends the ex-dividend date is two business days before (with the same exceptions), just like any dividend. Perhaps you meant to say that for open-end mutual funds, the ex-dividend date is the day after the record date - that might be true.

Here is an example of a large dividend in my experience. In the June 22, 2006 Wall Street Journal, page C9, Corporate Dividend News, a large $3.3877 dividend was declared for "MS Estrn Europe Fd RNE" with a record date of "6-30" (June 30, 2006). Now turn to the June 29, 2006 Wall Street Journal, which shows how stocks traded on June 28. On page B7, bottom half where it says "CLOSED-END FUNDS", column 7, you'll find "MS EstEur RNE sx". The "x" means it went ex-dividend on that day, June 28 (see "How to Read the Stock Tables" on page C5). June 28 is two business days before June 30 as normal, as are all dividends in my experience - although I don't trade open end mutual funds. Art LaPella 18:27, 5 August 2006 (UTC)

Months later, I now know the sentence I reverted was basically right, although only for dividends much larger than my example. This is now explained in the article's current version. Art LaPella 04:01, 11 March 2007 (UTC)

[edit] Merge

Do we have to merge? Dividend is about 17K, approaching the 30K level where Wikipedia:Summary style recommends splitting off subtopics like this one down into sub-articles, like this one. We could consolidate some repeated information, both duplicated information within this article itself, and information in the Dividend article that could be summarized away, leaving this article to explain details like Columbus Day. Art LaPella 17:30, 11 April 2007 (UTC)

I am totally against merging. This an encyclopedia and not a big, fat novel that explains everything on the planet in one article. The information has to be accessible in reasonable little chunks. Otherwise my research takes twice the time. Thanks for your understanding. Hirsch.im.wald 21:40, 6 May 2007 (UTC).

[edit] Confustion about fractions of a day

The article as written goes into a great deal (and probably excessive) detail about how full days are counted, but doesn't explain what happens if trades are made during critical dates (e.g., the record date). For example, is it ownership at the close of the market, at the end of after-hours trading, at the open of market, at midnight, or some other time that is used? —Preceding unsigned comment added by 75.36.154.75 (talk) 03:48, August 29, 2007 (UTC)

How did I miss this comment? The article says "Someone who purchases the stock on or after the ex-dividend date will not receive the dividend..." If they purchase the stock before the ex-dividend date (not the record date), they don't get the dividend. Thus your answer could be "midnight", although the markets aren't open at midnight. Art LaPella 02:48, 17 September 2007 (UTC)