The stock starts trading ex-dividend, that is, without the right to the dividend, one business day before the date on which that right is acquired. Buying on the ex-dividend date does not give you the right to the dividend, so in theory the share price on that date is expected to fall by about the amount of the dividend1.

Consider a hypothetical example in which a stock pays a dividend of 40 yen per share. It is expected to start trading on the ex-dividend date at a price about 40 yen lower.

The formula for the theoretical price of Nikkei 225 Futures, one of the equity index futures, uses the expected dividend yield as the estimate of dividends that can be received before expiry. Dividends therefore affect the theoretical price of Nikkei 225 Futures2. The article "Equity Index Futures" explains this in detail.

Notes

  1. Japan Exchange Group, "配当落" (Ex-dividend, our translation; in Japanese), in its glossary. ↩

  2. Osaka Exchange, "先物取引のすべて" (All about futures trading, our translation; in Japanese), p. 42 (PDF p. 45), "裁定取引の具体例" (Specific example of arbitrage, our translation): "①日経225先物の理論価格" ((1) Theoretical price of Nikkei 225 Futures, our translation; δ is the expected dividend yield) and "③配当収益の計算" ((3) Calculation of dividend income, our translation). ↩