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Ex Dividend Day Behaviour In The Absence Of Taxes And Price Discreteness
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Book Synopsis Ex-Dividend Day Behaviour in the Absence of Taxes and Price Discreteness by : Khamis Al-Yahyaee
Download or read book Ex-Dividend Day Behaviour in the Absence of Taxes and Price Discreteness written by Khamis Al-Yahyaee and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the ex-dividend day behaviour in a unique setting where (1) there are neither taxes on dividends nor on capital gains, (2) stock prices have been decimalized, (3) dividends are distributed annually, and (4) we have data that enable us to examine bid-ask bounce effects. In this economy, any price decline that is smaller than the dividends can not be attributed to taxes and price discreteness. Like previous studies, we find that the stock price drops by less than the amount of dividends and there is a significant positive ex-day return. By examining abnormal volumes around the ex-dividend day, we find no evidence of short-term trading. We are able to account for our results using market microstructure models. When the impact of market microstructure is taken into account, the ex-dividend drop is not significantly different to the value of the dividend paid.
Download or read book Ticks and Tax written by C. Bryan Cloyd and published by . This book was released on 2004 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine ex-dividend day stock price behavior before and after the NYSE converted from discrete (1/16ths) to decimal pricing systems in early 2001, as well as the effect of equalizing the federal income tax rates on dividend and long-term capital gain income in May 2003. Prior literature reports a robust empirical result that share prices decrease on the ex-dividend day by less than the amount of the dividend, but there is little agreement about whether this incomplete price adjustment is caused by share price discreteness, differential taxation of dividend income relative to capital gains, or other factors. Two recent studies, Graham, Michaely and Roberts (2003) and Jakob and Ma (2004), report that declining price discreteness (e.g. from 1/16ths to decimal pricing) had no material effect on the cum- to ex-day price-drop-to-dividend ratio. Although we report similar findings for the price-drop ratio, we find that ex-day abnormal returns declined significantly as a result of decimalization in 2001, and declined further in response to tax rate equalization in May 2003. Thus, our findings support the view that both price discreteness and differential taxation affect ex-dividend day stock price behavior.
Book Synopsis Further Evidence on Dividend Yields and the Ex-Dividend Day Stock Price Effect by : Ravinder K. Bhardwaj
Download or read book Further Evidence on Dividend Yields and the Ex-Dividend Day Stock Price Effect written by Ravinder K. Bhardwaj and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Ex-dividend day stock price behavior supports discreteness and tax clientele effects. The effects are still found after the Tax Reform Act of 1986. Results reflect an effective tax advantage for capital gains taxes payable at realization, versus dividend taxes due quarterly. Evidence also supports short-term trader participation in the ex-day phenomenon when the difference between dividend income and the ex-dividend day price decrease exceeds transaction costs to trade. Results contradict prior research where a tax clientele effect is not found, but align with the same prior research when including a small number of contaminated observations.
Book Synopsis Ex-dividend Day Stock Price Behaviour, Taxes and Discrete Prices by : Pasi Sorjonen
Download or read book Ex-dividend Day Stock Price Behaviour, Taxes and Discrete Prices written by Pasi Sorjonen and published by . This book was released on 1999 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Tiivistelmä.
Book Synopsis Ex-Day Behaviour by : Meziane Lasfer
Download or read book Ex-Day Behaviour written by Meziane Lasfer and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the behaviour of share prices around the ex-dividend dates before and after the introduction of the 1988 Income and Corporation Taxes Act (ICTA) that changed substantially the tax differential between dividends and capital gains in the UK. Moreover, after accounting for the settlement day effect, we find that in the pre-1988 period when the differential taxation of dividends and capital gains is high, ex-day returns are positive and significant. In contrast, in the post-1988 period, ex-day returns are, in most cases, negative and insignificant. Further analysis reveals that, while ex-day returns are significantly related to dividend yield and to the length of the settlement period, they are not affected by the commonly used measures of transaction costs, such as the bid-ask spread and trading volume, or by the day of week, month of the year, type of dividend distribution or number of days to the actual receipt of the cash dividend. We conclude that taxation affects significantly ex-day share prices in the UK.
Book Synopsis Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing Before and after Decimalization by : John R. Graham
Download or read book Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing Before and after Decimalization written by John R. Graham and published by . This book was released on 2011 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8ths and 1/16ths to decimals. This study examines the effect of this change in price quotations on ex-dividend day activity. We find that abnormal ex-dividend day returns increase in the 1/16th and decimal pricing eras, relative to the 1/8thera, which is inconsistent with microstructure explanations of the ex-day price movements. We also find that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains affects ex-day pricing.
Book Synopsis Investors' Heterogeneity, Prices, and Volume Around the Ex-Dividend Day (Classic Reprint) by : Roni Michaely
Download or read book Investors' Heterogeneity, Prices, and Volume Around the Ex-Dividend Day (Classic Reprint) written by Roni Michaely and published by Forgotten Books. This book was released on 2018-01-29 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excerpt from Investors' Heterogeneity, Prices, and Volume Around the Ex-Dividend Day Our analysis shows that unless a perfect tax clientele exists, it is not possible to infer tax rates from price alone. [by a perfect tax clientele we mean that each tax group hold different securities, and all trading is intra-group trading. See Miller and Modigliani (1961) and Elton and Gruber However, the cross-sectional distribution of tax rates can be inferred by using both price and volume data. This point can be illustrated using the following stylized example. Assume that there are three groups of traders in the marketplace with a marginal rate of substitution between dividends and capital gains income of and respectively. Assume further that the average price drop relative to the dividend amount is Using the standard analysis, we may conclude that the second group dominates the ex-dividend day price determination. However. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Book Synopsis Does Price Discreteness Explain Ex-dividend Day Behavior? by : Ka Ming Mok
Download or read book Does Price Discreteness Explain Ex-dividend Day Behavior? written by Ka Ming Mok and published by . This book was released on 2018 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Taxation and the Ex-dividend Day Behavior of Common Stock Prices by : Jerry Green
Download or read book Taxation and the Ex-dividend Day Behavior of Common Stock Prices written by Jerry Green and published by . This book was released on 1980 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The behavior of stock prices around ex-dividend days has been suggested as evidence for tax-induced clientele effects and as a means to estimate the average effective tax rate faced by investors. In this paper these possibilities are examined theoretically and empirically. Theoretically it is shown that the measured price drop per dollar of dividend may provide a biased estimate of the effective tax rate. Looking at the volume of trade around ex-dividend days we show that the conditions under which it would be unbiased are unlikely to hold. Strong evidence, based on a broader database than that used by previous investigators, is presented for the presence of the clientele effect
Book Synopsis Taxation and the Ex-dividend Day Behaviour of Security Prices by : Stephen Eliot Binder
Download or read book Taxation and the Ex-dividend Day Behaviour of Security Prices written by Stephen Eliot Binder and published by . This book was released on 1985 with total page 98 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Marginal Stockholder Tax Effects and Ex-Dividend Day Behavior - Thirty-Two Years Later by : Edwin J. Elton
Download or read book Marginal Stockholder Tax Effects and Ex-Dividend Day Behavior - Thirty-Two Years Later written by Edwin J. Elton and published by . This book was released on 2010 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since Elton and Gruber's (Eamp;G) original article on taxes and ex-dividend price behavior was published in 1970, over 100 articles have appeared in the leading journals of financial economics examining whether prices fall by less than the dividends and, if so, whether or not the phenomenon is due to tax effects, market microstructure effects, or some other effect. The microstructure argument is the most serious alternative to the tax argument. All of the microstructure arguments state that the fall in stock price should be less than the dividend, regardless of whether the dividend is taxable or tax-advantaged. By testing ex-dividend effects on a sample of closed-end funds where dividends are taxadvantaged, we find that taxes should and do cause the fund price to fall by more than the amount of the dividend. This is consistent with a tax argument and inconsistent with a microstructure argument. Examining the sample of tax-free dividends, we find that the Eamp;G and return measures change across two tax regimes exactly as theory suggests they should if taxes mattered. We then examine non-tax-advantaged closed-end funds. For these funds we should find the traditional ex-dividend tax effects: the fall in price on the ex-dividend date should be less than the dividend during periods when capital gains taxes are less than income taxes. This is what we find. Furthermore, the ex-dividend behavior of these funds generally moves in the direction we would expect across two changes in tax regimes. The taxable sample not only substantiates the tax effect, it also demonstrates that the fall in price greater than the dividend for closed-end municipal bond funds was not due to some peculiar aspect of either our methodology or the closed-end fund industry. Thirty-two years after Eamp;G's original study, we find new and compelling evidence that taxes play an important part in affecting share price changes.
Book Synopsis Investors' Heterogeneity, Prices, and Volume Around the Ex- Dividend Day by : Roni Michaely
Download or read book Investors' Heterogeneity, Prices, and Volume Around the Ex- Dividend Day written by Roni Michaely and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the relationship between tax heterogeneity and the behavior of stock prices and trading volume around the ex-dividend day within an equilibrium framework. We conclude that, even in a world without transaction costs, the price drop on the ex-day need not be equal to the dividend amount. Our model accounts for the higher market trading volume around the ex-day, and shows this to be a function of tax heterogeneity among traders. We show that the volume of trade around the ex-day contains information about investors' tax preferences above and beyond the information contained in the ex-day price alone. Consistent with the model's predictions, our empirical analysis reveals that as the risk associated with the ex-dividend day increases, or tax heterogeneity decreases, trading volume decreases.
Book Synopsis Decimalization and the Ex-Dividend Behavior of Stock Prices by : Dan W. French
Download or read book Decimalization and the Ex-Dividend Behavior of Stock Prices written by Dan W. French and published by . This book was released on 2002 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we examine changes in the behavior of ex-dividend stock prices when the exchanges changed from pricing stocks in discrete intervals to decimal pricing. Based on prior models of ex-dividend behavior and price discreteness of Dubofsky and of Bali and Hite, we anticipate that the move to trading in decimals would decrease the variance of returns on all exchanges and increase the level of ex-dividend-day returns on the NYSE while reducing them on the Amex and Nasdaq.Our sample of ex-dividend-day returns covers periods slightly longer than one year before and after decimalization. For the overall sample and for each of the individual exchanges (Amex, Nasdaq and NYSE), the variances of ex-dividend returns experience a significant decrease after decimalization while the mean returns increase by a positive and significant amount. To account for the increase in ex-day returns on the Amex and Nasdaq, we develop an alternative model to explain the effect of discreteness on ex-day returns. Tests of the three models (Dubofsky's, Bali and Hite's, and ours) indicate that prior to decimalization, as expected, Dubofsky's model is better for explaining NYSE ex-day returns and ours fits the Nasdaq better. Bali and Hite's model, however, is unable to explain any of the pre-decimalization ex-day returns, including those of the Nasdaq where the Bali-Hite model might provide a reasonable description of ex-day market behavior. After decimalization, ex-dividend-day returns do not appear to follow either the scenario described by Dubofsky or by us. The most likely cause of this is that traders in the market are placing ex-dividend-day orders with limits somewhere between prices indicated by Dubofsky and by us.We also provide evidence that ex-dividend returns attributable to factors other than discreteness and the dividend yield actually declined following decimalization. Since the most obvious factor is transactions costs, we interpret this to be evidence of a reduction in ex-day returns caused by a reduction in transactions costs. We also find that the dividend yield is a significant influence on ex-dividend-day returns.
Book Synopsis Insights Into the Ex-Dividend Behavior of Stock Prices by : C Justin Robinson
Download or read book Insights Into the Ex-Dividend Behavior of Stock Prices written by C Justin Robinson and published by . This book was released on 2016 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper adds to the literature on the behavior of stock prices around the ex-dividend date by providing evidence on the behavior of stock returns and trading volumes around the ex-dividend date in the unique environment of the Jamaica Stock Exchange. The Jamaica Stock Exchange is characterized by two major changes to the dividend tax rate in recent years and the absence of any capital gains tax, short selling or market makers. Using the event-study methodology, the paper finds that changes in the dividend tax rate produces major changes in the price drop ratio and abnormal returns in one instance but not in the other, while trading volumes increase around the ex-dividend date regardless of the tax regime. These results suggest that while tax differentials between capital gains and dividends can play a major role in the ex-dividend behavior of stock prices, it may not provide a complete explanation of such.
Book Synopsis Taxation of Capital Gains and the Behavior of Stock Prices Over the Dividend Cycle by : Dan Palmon
Download or read book Taxation of Capital Gains and the Behavior of Stock Prices Over the Dividend Cycle written by Dan Palmon and published by . This book was released on 2013 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: By limiting their attention to the effect of capital gains tax on the price asked by mid-cycle sellers, Elton and Gruber (Review of Economics and Statistics v.52, 1970) overlook a parallel effect of capital loss credit on the bid price offered by mid-cycle buyers. We show that unequal marginal tax rates on capital gains and losses create two distinct price paths with a growing bid-ask spread between them. The dividend cycle ends with a corresponding drop of the dual price to a temporary common ex-dividend price. As perceived by shareholders, the mid-cycle bid-ask spread created in this fashion may add a significant trading cost beyond the observed market-price spread. Our analysis has important implications for shareholders' optimal timing of trade, the firm's optimal frequency and timing of dividends within the year, and government tax policy. A government seeking to tax capital gains should maintain parity between the tax rates of gains and losses to avoid the introduction of tax-induced trading costs. Absent rate parity, the firm should accommodate shareholders by following a predictable dividend schedule and avoiding extended intervals between dividends. Under this scenario, shareholders can avoid tax-induce trading costs by limiting their transactions to ex-dividend days.
Book Synopsis Ex-Dividend Day Stock Price Behavior - The NASDAQ Evidence by : Shishir K. Paudel
Download or read book Ex-Dividend Day Stock Price Behavior - The NASDAQ Evidence written by Shishir K. Paudel and published by . This book was released on 2014 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use dividend-paying Nasdaq-listed firms as a setting to test various explanations of the ex-day price anomaly. Similar to NYSE-listed firms, on average the prices of Nasdaq-listed firms drop by less than the dividend amount on the ex-day. However, the average price-drop is half that observed for NYSE-listed firms and translates to an imputed dividend tax rate that is double the average maximum tax rate over the sample period. In addition, we find the ex-day price-drop increases in dividend yield, opposite the prediction from a tax clientele explanation. Moreover, for non-taxable distributions we find prices behave in a similar manner to taxable distributions on the ex-day, again suggesting taxes are not the primary reason for the price behavior. In sum, we find little support for tax-based explanations. We also find little support for short-term trading and market microstructure explanations. Importantly, our results are robust to transaction costs as proxied by stock price, liquidity, volatility, firm size and bid-ask spread. We supplement our analysis by investigating a subset of firms that voluntarily switch from the Nasdaq exchange to the NYSE. The average price-drop for the switching firms is similar to the Nasdaq average prior to the switch and resembles the NYSE average immediately after the switch. This change in price behavior potentially reflects a changing investor base and suggests the marginal investor of Nasdaq dividend-paying firms places relatively less importance on dividends. Overall, our results call into question the various explanations of the ex-day anomaly. Any potential explanation also needs to account for the Nasdaq evidence.
Book Synopsis The Effect of Tax Heterogeneity on Prices and Volume Around the Ex-Dividend Day by : Roni Michaely
Download or read book The Effect of Tax Heterogeneity on Prices and Volume Around the Ex-Dividend Day written by Roni Michaely and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: To investigate the effect of taxation on stock price and trading volume around the ex-dividend day, we use the Italian stock market, where dividends on two classes of stock are taxed differently. When all investors face identical tax rates on dividends (holders of savings stocks), we find that the average price decline between the cum-and the ex-dividend day equals the after-tax valuation of dividends, and that there is no excess volume around the ex-day. When the tax rate on dividend income varies across investors (the common stock sample), we find significant excess volume around the ex-dividend day, as well as an average price decline smaller than the minimum after-tax valuation of dividends. The latter finding is inconsistent with the pure tax-trading hypothesis. It may be explained by the confounding registration effect: individual investors sell the stock prior to the ex-day to maintain their fiscal anonymity. However, a study of block trading activity, which is done by traders who are not subject to the registration effect, shows evidence consistent with the notion that a significant portion of the ex-dividend day trading is motivated by the differential valuation of dividends relative to capital gains. We also show that higher transaction costs result in higher ex-dividend day excess returns and lower abnormal volume. This finding is consistent with quot;profit eliminationquot; activity by institutions and corporations.
