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DRIPs and the Dividend Pay Date Effect

  • Henk Berkman and Paul D. Koch


On the day that dividends are paid, we find a significant positive mean abnormal return that is completely reversed over the following days. This dividend pay date effect has strengthened since the 1970s and is consistent with the temporary price pressure hypothesis. The pay date effect is concentrated among stocks with dividend reinvestment plans (DRIPs) and is larger for stocks with a higher dividend yield, greater DRIP participation, and greater limits to arbitrage. Over time, profits from a trading strategy that exploits this behavior are positively related to the dividend yield and spread and negatively associated with aggregate liquidity.


Corresponding author

* Berkman,, Business School, University of Auckland; Koch (corresponding author),, School of Business, University of Kansas.


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We acknowledge the helpful comments of an anonymous referee, Ferhat Akbas, Bob DeYoung, David Emanuel, Suzanna Emelio, Greg Freix, Kathleen Fuller, Brad Goldie, Ted Juhl, Michal Kowalik, Joe Lan, Paul Malatesta (the editor), Dimitris Margaritis, Alastair Marsden, Felix Meschke, Nada Mora, Peter Phillips, David Solomon, Ken Spong, Jide Wintoki, and seminar participants at the 2013 annual conferences of the Society of Financial Studies Finance Cavalcade, the 2013 Financial Management Association, and the 2012 Southern Finance Association, as well as the University of Auckland, the University of Canterbury, the University of Kansas, and the Federal Reserve Bank of Kansas City. We also acknowledge the excellent research assistance of Aaron Andra, Suzanna Emelio, and Evan Richardson. Please do not quote without permission.



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