Ex-Dividend Day Price Behavior of the Taiwan Stock Exchange in Different Tax Regimes
Date Issued
2012
Date
2012
Author(s)
Hsuan Wang, Tse
Abstract
We investigate the stock prices on ex-dividend day in the Taiwan Stock Exchange in different tax regimes over the period 1998-2010. We also calculate extra returns that investors can earn by purchasing stocks on the day prior to ex-dividend and selling on the following day at the closing price. We find significant extra returns for investors in low income tax rate, but the average extra return has decreased since 1998. On the other hand, we find significant losses for investors in high income tax rate. Moreover, consistent with our analytical model, changes in income tax law in 2010 causes the extra returns to increase and the extra losses to decrease. Finally, we find evidence that the extra returns are positively correlated to the income tax credit ratio, and negatively correlated to the ratio of the ex-dividend price to the cum-dividend price. According to our findings, we discuss the management implications and present our suggestions to the investors and government.
Subjects
Tax law changes
ex-dividend
extra return
income tax credit ratio
bargain hunting hypothesis
Type
thesis
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ntu-101-R99722042-1.pdf
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