> The timing of dividend payments is irrelevant.

False. If I receive cash today I can reinvest it and start earning a return. If I receive cash in a month I have forgone one months reinvestment return.

> investors could simply short the stock and get a guaranteed profit, which is not possible in an efficient market.

False. Well if you are short a stock over ex dividend date then you need to pay the owner of the stock (whomever you borrowed from) 1) the dividend which he has forgone 2) a financing spread equal to a benchmark (e.g. FED Funds + 300 bp's) for the duration you are short.

No offense but you really haven't thought this through very hard.

Also markets are not efficient despite what you read in academia.

The net present value takes into account the difference between payment today and payment tomorrow.

The ex-dividend rate is an implementation flaw that makes the stock price discontinuous at the dividend date. If dividends were pro-rata it would not be.

I never said markets were perfectly efficient.

You didn't think through your answer very hard did you? ;)

I think we are going to continue disagreeing. You seem to enjoy Finance so I would encourage you to learn more about it for your own benefit.

> that a stock's price predictably fell the day after the dividend,

They do. But you don't usually see this, because the prices are "adjusted", to make price history continuous, same as with stock splits.

Take a look at MSFT (Microsoft) stock price on Yahoo! Finance. "Close" is what actually happened, and "Adj Close" is what you see on the graph.

  Date	          close      Adj Close*
  16 Feb 2016     51.09	     51.09
  16 Feb 2016                             0.36 Dividend
  12 Feb 2016     50.50      50.14

  * Close price adjusted for dividends and splits.

https://uk.finance.yahoo.com/q/hp?s=MSFT

> investors could simply short the stock and get a guaranteed profit

No, to short a stock you need to borrow it first. If you borrow a stock, you owe the dividends that were due in the meantime.

The adjusted price reference you made is axiomatic. Adjusted prices simply subtract the dividend. It does not reflect market value. You'll notice the open on the day after the dividend, the stock actually went up $0.40 from the closing price.

When shorting, you only pass the dividends through. The company sends you the dividend, you send it to the original owner, you could still profit from the drop in share price.

Well, the stock price might have changed because of some news or general market sentiment. I guess I could have found a better example, a stock where the dividend is much bigger (percentage-wise), the effect would be much clearer then.

Edit: e.g. EWM (an ETF, I think)

https://uk.finance.yahoo.com/q/hp?s=EWM&d=3&e=4&f=2016&g=d&a...

No, shorting doesn't work that way, obviously. "Shorting" means you sell he stock, so the new owner gets the dividend, not you. That's one reason shorting equities is very risky long-term.

The ex-dividend date is an implementation flaw that makes the stock price discontinuous at the dividend date (I initially misunderstood this). However, in theory, a pro-rata dividend would be continuous.

Yes. That's what happens with bonds (clean vs dirty price). It's more complicated with equities because the size of the payout isn't known in advance.