The empirical observation that stock prices fall on ex-dividend days by significantly less than the amount of the dividend has been often interpreted

Question

Quizplus · Accepted Answer

This observation suggests that investors value dividends more than an equivalent amount of capital gains because of the tax advantage of dividends. On the ex-dividend day, the stock price automatically adjusts for the dividend payout, but the stock price does not drop by the full amount of the dividend due to the tax preferences of investors.

The Empirical Observation That Stock Prices Fall on Ex-Dividend Days