Bank nifty and dividends

[des]

Hi, I want to know what happens to bank nifty index value and the futures price when a stock in the index does ex dividend? Do they recalculate the index value according to the new lower ex dividend price?

 

[des]

Sorry please elaborate. What do you mean when you say it doesn't always make the right correct up or down. Isn't the value of the dividend known exactly when it happens?

Also what is the effect of the dividend payout on the futures price i.e futures on bank nifty?

 

[des]

why do you say so? what is complex about it?

 

[des]

Sorry not sure how you mean. I did read the article and it has nothing to do with what I asked. Maybe I am missing something.

 

[TraderRavi]

Sorry not sure how you mean. I did read the article and it has nothing to do with what I asked. Maybe I am missing something.

:rofl::rofl:

MT is in his own world..........

 

[praveen taneja]

:rofl::rofl:

MT is in his own world..........

:rofl::rofl::rofl::rofl: Jai Ho!!!!!!!!!!!!!!!!!!

 

[cinderblock]

Hi, I want to know what happens to bank nifty index value and the futures price when a stock in the index does ex dividend? Do they recalculate the index value according to the new lower ex dividend price?

After the announcement of dividend, the stock (not futures) should move up because people buy the stock to earn the dividend. The futures don't move since you don't get dividend for holding futures. Ex- dividend, the stock falls (theoretically equal to the dividend) and futures remain where they are.

So, stock goes up and then down and futures remain where they are (as long as announcement of dividend is the only factor affecting the price movement of course).

Yes, Bank Nifty index will be recalculated based on the new price of the constituent stock. Bank nifty futures remain unaffected.

Edit:
Or more correctly, as soon as the dividend is announced, there is a small arbitrage opportunity and stock goes up and the futures down (you won't be able to take advantage because you don't know when the dividend is announced). And when the stock goes ex- dividend, the futures won't move (because it's already discounted the ex-dividend price) but stock comes down.

 

[nac]

:rofl::rofl:

MT is in his own world..........

I am really :rofl: hanging around here, today.

One wants to take long in underlying and sell @ strike price (like doing arbitrage)

And.... :rofl::rofl:

I am literally rolling on the floor laughing...

 

[des]

Ok thanks cinderblock. Your reply makes more sense but here are some questions

1) How are dividends announced in India. Are they known for the entire year for say HDFC Bank or does it keep on changing every quarter?

2) The No arbitrage pricing says that the futures should also go down if a dividend is expected

http://en.wikipedia.org/wiki/Single-stock_futures

The easiest way to see it is, imagine an extreme case in which a particular firm gives away all the cash it has on the books in the form of dividends, the future price has to go to zero in that case.

 

[nac]

Hey! MT

No offense buddy...