The effect of a reduction in price discreteness on ex-day stock returns in a unique environment

► We examine the effect of the reduction in tick size on ex-dividend day stock price behavior. ► We find that ex-day premiums increase and abnormal returns decrease as the tick size become smaller. ► We do not find any significant increase in abnormal volume with the reduction in tick size. ► We also find that the ex-day premium decreases as the dividend yield increases.