DIVIDEND CAPTURE IN NASDAQ STOCKS

We examine the importance of dividend-capture trading in NASDAQ stocks by testing for cross-sectional relations between ex-day abnormal returns and bid-ask spreads. Throughout, we find that ex-day returns and spreads are positively related. The relation increases across dividend-yield quintiles and is strongest in high-yield stocks. The relation does not appear in a sample of non-ex-dividend days. These findings indicate that dividend-capture trading affects the ex-day returns of at least some, particularly high-yield, NASDAQ stocks, and that dividend-capture trading is important for understanding ex-dividend-day returns. © 1990.