Article (Scientific journals)
A test of the Modigliani-Miller theorem, dividend policy and algorithmic arbitrage in experimental asset markets
NEUGEBAUER, Tibor; Shachat, Jason; Szymczak, Wiebke
2023In Journal of Banking and Finance, 154, p. 106814
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Abstract :
[en] Modigliani and Miller showed the market value of the company is independent of its capital structure, and suggested that dividend policy makes no difference to this law of one price. We experimentally test the Modigliani-Miller theorem in a complete market with two simultaneously traded assets, employing two experimental treatment variations. The first variation involves the dividend stream. According to this variation the dividend payment order is either identical or independent. The second variation involves the market participation, or not, of an algorithmic arbitrageur. We find that Modigliani-Miller’s law of one price can be supported on average with or without an arbitrageur when dividends are identical. The law of one price breaks down when dividend payment order is independent unless there is arbitrageur participation.
Disciplines :
Finance
Author, co-author :
NEUGEBAUER, Tibor  ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF)
Shachat, Jason
Szymczak, Wiebke
External co-authors :
yes
Language :
English
Title :
A test of the Modigliani-Miller theorem, dividend policy and algorithmic arbitrage in experimental asset markets
Publication date :
September 2023
Journal title :
Journal of Banking and Finance
ISSN :
0378-4266
eISSN :
1872-6372
Publisher :
Elsevier, Netherlands
Special issue title :
Experimental Finance
Volume :
154
Pages :
106814
Peer reviewed :
Peer Reviewed verified by ORBi
Available on ORBilu :
since 20 February 2023

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