Dividend drop ratios and tax theory: An intraday analysis under different tax and price quoting regimes
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Accepted Version.
Balasubramaniam, V., Bertin, W., Henker, T., & Prather, L. (2010). Dividend drop ratios and tax theory: An intraday analysis under different tax and price quoting regimes. Paper presented at the Financial Management Assocation (FMA) European conference program, Hamburg, Germany.
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© Copyright Vyas Balasubramaniam, William Bertin, Thomas Henker & Laurie Prather, 2010
Abstract
We calculate dividend drop ratios over 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 picture of price changes due to dividend payments than those produced in previous literature. Intraday estimates for dividend drop ratios are consistently higher than those calculated with 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.
Suggested Citation
Vyas Balasubramaniam, William Bertin, Thomas Henker, and Laurie Prather. "Dividend drop ratios and tax theory: An intraday analysis under different tax and price quoting regimes" Financial Management Assocation (FMA) European conference. Hamburg, Germany. Jun. 2010.
Available at: http://works.bepress.com/thomas_henker/15