Reference : A test of the Modigliani-Miller theorem, dividend policy and algorithmic arbitrage in...
Scientific journals : Article
Business & economic sciences : Finance
A test of the Modigliani-Miller theorem, dividend policy and algorithmic arbitrage in experimental asset markets
Neugebauer, Tibor mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) >]
Shachat, Jason []
Szymczak, Wiebke []
In press
Journal of Banking and Finance
Experimental Finance
[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.
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