Attention effect on the ex date: Evidence from Taiwan

Shing-yang Huand

Yun-lan Tseng

Motivation Ex-dividend day phenomenon

Stock returns are significantly positive Campbell and Beranek (1955); Durand and May (19

60). 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)

Motivation - Literature

Tax Elton and Gruber (1970)

Microstructure Bali and Hite (1998); Dubofsky (1992)

Small investor preference Black (1986); Lakonishok and Lev (1987)

Contribution – New interpretation

1. Attention paid to ex dates Higher publicity

Company announcement, Stock exchange Brokerage houses and newspapers reports

2. Attract a higher demand from small investors to push up the price

3. High attention stocks gets more purchase from small investors

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

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

Contribution – New evidence

Provide the direct link between repots, small investors purchase, and ex-date returns

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

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

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 pr

evailing best ask Sell order is aggressive if its limit price is lower than the best

bid

Data – Standardized abnormal order imbalance

ijtmjtijijijt uOO , t = -50,…,-6,

mjtijijijtijt OOAO ˆˆ

ijt

ijtijt AO

AOSAO

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

mtiiitit RRAR ˆˆ

mtiiitit RRAR ˆˆ mtiiitit RRAR ˆˆ

itmtiiit uRR

Results – Media reports Linear probability model

(1) (2) (3)

0.094*** 0.104*** 0.078** Intercept

(0.035) (0.036) (0.039)

0.007** 0.006* Distribution rate

(0.003) (0.003)

0.017 0.011 0.013 Turnover

(0.018) (0.019) (0.018)

0.044* 0.024 Market-to-book value

(0.024) (0.026)

0.017 0.021 0.018 Growth of small shareholder

(0.016) (0.016) (0.016)

Results – Small investor OIB

0.050 0.135 0.228* 0.025 Intercept

(0.102) (0.105) (0.099) (0.109)

0.003 0.020** 0.005 Distribution rate

(0.008) (0.008) (0.008)

0.172*** 0.225*** 0.174*** Turnover

(0.052) (0.051) (0.052)

0.320*** 0.358*** 0.301*** Market-to-book value (0.066) (0.071) (0.072)

0.123*** 0.124*** 0.111** 0.120*** Growth of small shareholder (0.044) (0.045) (0.045) (0.044)

R2 0.119 0.094 0.081 0.120

Results – Abnormal return

Full sample

(N=398)

Taxable

sample

(N=123)

Nontaxable

sample

(N=138)

0.354 0.297 0.139 -0.144 0.637 Intercept

(0.270) (0.275) (0.288) (0.515) (0.515)

0.044** 0.046** 0.067* 0.045 Distribution rate

(0.022) (0.022) (0.039) (0.050)

0.230* 0.250* 0.158 0.117 Turnover

(0.137) (0.137) (0.214) (0.235)

0.483*** 0.396** 0.314 0.280 -0.171 Market-to-book value (0.175) (0.187) (0.192) (0.321) (0.404)

0.187 0.166 0.159 0.275 0.531* Growth of small shareholder (0.117) (0.118) (0.118) (0.207) (0.278)

R2 0.039 0.042 0.050 0.077 0.038

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

4

4

3

3

2

2

1

1

c

b

c

b

c

b

c

b

Overidentifying restrictions

E[DISTi(ri – aAi)] = E[TURNi(ri – aAi)] = E[M/Bi(ri – aAi)] = E[SSHi(ri – aAi)] = 0.

Nonlinear restrictions

Results – Connection (1) (2) (3) (4) (5)

Intercept 0.191

(0.288)

-0.651

(0.880)

-0.390

(0.777)

0.288

(0.385)

-0.151

(0.374) Small investor order imbalance

1.554***

(0.446)

0.681

(1.024)

1.282***

(0.491)

Media coverage 10.915**

(4.965)

6.731

(7.343)

Large investor order imbalance

3.794***

(1.315)

2.178

(1.497) Test of overidentifying restrictions

1.845 0.354 0.136 6.835* 0.305

Test of nonlinear restrictions

1.680 0.310 0.110 4.120 0.210

Results – Institution OIB

0.100 0.067 -0.015 0.087 Intercept

(0.104) (0.106) (0.099) (0.111)

0.003 -0.004 0.003 Distribution rate

(0.008) (0.008) (0.008)

-0.033 -0.058 -0.032 Turnover

(0.052) (0.051) (0.052)

-0.139** -0.161** -0.150** Market-to-book value (0.068) (0.072) (0.074)

-0.024 -0.026 -0.022 -0.025 Growth of small shareholder (0.044) (0.045) (0.045) (0.045)

R2 0.016 0.015 0.005 0.016

Results – Large investor OIB

0.201* 0.150 0.086 0.125 Intercept

(0.090) (0.091) (0.086) (0.096)

0.016** 0.014** 0.016** Distribution rate

(0.007) (0.007) (0.007)

0.032 0.030 0.039 Turnover

(0.046) (0.044) (0.046)

0.002 -0.045 -0.058 Market-to-book value (0.058) (0.062) (0.064)

0.028 0.019 0.020 0.018 Growth of small shareholder (0.039) (0.039) (0.039) (0.039)

R2 0.003 0.014 0.014 0.016

Results – Large investor OIB

Taxable distributions

(N=123)

Nontaxable distributions

(N=138)

0.057 -0.168 -0.048 0.115 0.116 0.113 Intercept

(0.167) (0.141) (0.170) (0.161) (0.165) (0.185)

0.023* 0.030** 0.001 0.0004 Distribution rate

(0.012) (0.013) (0.017) (0.018)

0.063 0.072 0.078 0.031 0.032 0.031 Turnover

(0.072) (0.071) (0.071) (0.084) (0.078) (0.084)

-0.034 -0.134 0.005 0.004 Market-to-book value (0.099) (0.106) (0.138) (0.145)

-0.033 -0.067 -0.072 0.114 0.114 0.113 Growth of small shareholder (0.068) (0.069) (0.069) (0.099) (0.099) (0.100)

R2 0.009 0.039 0.052 0.013 0.013 0.013

Results – Small investor OIB

Taxable distributions

(N=123)

Nontaxable distributions

(N=138)

0.476*** 0.352** 0.387** 0.052 0.184 -0.024 Intercept

(0.180) (0.152) (0.185) (0.149) (0.157) (0.171)

0.023* 0.025* 0.028* 0.015 Distribution rate

(0.013) (0.014) (0.016) (0.017)

0.185** 0.196** 0.198** 0.118 0.200*** 0.122 Turnover

(0.077) (0.076) (0.077) (0.078) (0.074) (0.078)

0.045 -0.039 0.405*** 0.369*** Market-to-book value (0.106) (0.116) (0.129) (0.134)

0.121* 0.090 0.089 0.168* 0.176* 0.163* Growth of small shareholder (0.073) (0.074) (0.074) (0.092) (0.095) (0.093)

R2 0.070 0.093 0.094 0.155 0.113 0.160

Results – Alternative hypothesis

Taxable

sample

(N=471)

Non-

taxable

sample

(N=351)

Exact tick-multiple

sample

(N=250)

Full sample

(N=1525)

(1) (2) (3) (4) (5) (6)

0.608*** 0.000 0.563** 0.858*** 0.613 0.617 Intercept

(0.192) (0.249) (0.266) (0.239) (0.499) (0.498)

0.041*** 0.070*** 0.042** 0.041*** 0.042*** Distribution rate

(0.013) (0.022) (0.017) (0.008) (0.007)

0.196* 0.111 0.393** 0.418** 0.228*** 0.230*** Turnover

(0.103) (0.123) (0.166) (0.167) (0.061) (0.060)

-0.087* 0.147 0.021 0.131*** 0.010 Market-to-book value (0.052) (0.095) (0.064) (0.046) (0.051)

0.063 0.120 -0.167 -0.174* 0.004 0.004 Growth of small shareholder (0.069) (0.132) (0.103) (0.104) (0.043) (0.043)

0.000 0.000 Price level

(0.004) (0.002)

-0.014 -0.014 Size

(0.057) (0.057)

R2 0.034 0.067 0.097 0.075 0.047 0.047

Results – Annual regression

(1) (2) (3) (4)

Intercept 0.702***

(0.217)

0.906***

(0.168)

0.799***

(0.155)

0.786***

(0.149)

Turnover 0.000

(0.001)

0.001*

(0.0006)

-0.0002

(0.0007)

Market-to-book value

0.018

(0.015)

-0.010

(0.018)

-0.002

(0.016)

Price-to-earning 0.010**

(0.004)

0.008**

(0.004)

0.008***

(0.003)

Market return 0.005**

(0.002)

0.004**

(0.002)

0.004*

(0.002)

R2 0.494 0.464 0.570 0.568