Dividend drop ratios and tax theory: An intraday analysis under different tax and price quoting regimes

Vyas Balasubramaniam, William Bertin, Thomas Henker, Laurie Prather

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We calculate dividend drop ratios over different periods with changing quotation and taxation frameworks to assess the validity of competing explanations. Using intraday prices adjusted for non-trading, we provide a more accurate representation of price changes due to ex-dividend day effects than those depicted in previous literature. Intraday estimates for dividend drop ratios are consistently higher than those calculated with beginning or end of day prices. Further findings indicate that stocks trading ex-dividend, on average, underperform the market over the following month. We attribute this phenomenon to dividend capture trading by tax advantaged and tax indifferent market participants.
Original languageEnglish
JournalAcademy of Taiwan Business Management Review
Volume7
Issue number2
Publication statusPublished - 2011

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Tax
Dividends
Taxation
Price changes
Ex-dividend day
Ex-dividend

Cite this

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abstract = "We calculate dividend drop ratios over different periods with changing quotation and taxation frameworks to assess the validity of competing explanations. Using intraday prices adjusted for non-trading, we provide a more accurate representation of price changes due to ex-dividend day effects than those depicted in previous literature. Intraday estimates for dividend drop ratios are consistently higher than those calculated with beginning or end of day prices. Further findings indicate that stocks trading ex-dividend, on average, underperform the market over the following month. We attribute this phenomenon to dividend capture trading by tax advantaged and tax indifferent market participants.",
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Dividend drop ratios and tax theory : An intraday analysis under different tax and price quoting regimes. / Balasubramaniam, Vyas; Bertin, William; Henker, Thomas; Prather, Laurie.

In: Academy of Taiwan Business Management Review, Vol. 7, No. 2, 2011.

Research output: Contribution to journalArticleResearchpeer-review

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AU - Bertin, William

AU - Henker, Thomas

AU - Prather, Laurie

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N2 - We calculate dividend drop ratios over different periods with changing quotation and taxation frameworks to assess the validity of competing explanations. Using intraday prices adjusted for non-trading, we provide a more accurate representation of price changes due to ex-dividend day effects than those depicted in previous literature. Intraday estimates for dividend drop ratios are consistently higher than those calculated with beginning or end of day prices. Further findings indicate that stocks trading ex-dividend, on average, underperform the market over the following month. We attribute this phenomenon to dividend capture trading by tax advantaged and tax indifferent market participants.

AB - We calculate dividend drop ratios over different periods with changing quotation and taxation frameworks to assess the validity of competing explanations. Using intraday prices adjusted for non-trading, we provide a more accurate representation of price changes due to ex-dividend day effects than those depicted in previous literature. Intraday estimates for dividend drop ratios are consistently higher than those calculated with beginning or end of day prices. Further findings indicate that stocks trading ex-dividend, on average, underperform the market over the following month. We attribute this phenomenon to dividend capture trading by tax advantaged and tax indifferent market participants.

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JO - Academy of Taiwan Business Management Review

JF - Academy of Taiwan Business Management Review

SN - 1813-0534

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