Tax reform and the identity of marginal traders around ex-dividend days
Journal
Pacific Basin Finance Journal
Journal Volume
25
Pages
181
Date Issued
2013-01-01
Author(s)
Tseng, Yun lan
Abstract
In 1998, Taiwan changed the computation of dividend income for domestic investors. This tax reform offers a natural experiment to explore the relation between taxes and investor behavior around ex-dividend days. We find that the 1998 tax reform reduces the ex-date return and changes the identity of marginal traders on the ex-dividend day. While large and small individual investors functioned as marginal traders before the reform, large individual investors and foreign investors play the role after the reform. We also find that all types of domestic investors engage in arbitrage around ex-dividend days prior to the tax reform, whereas following the tax reform, domestic investors and foreigners act as short-term arbitrageurs surrounding the ex-date. Overall, our findings strongly support the dynamic dividend clientele theories. © 2013 Elsevier B.V.
Subjects
Arbitrage | Ex-dividend day | Marginal trader | Tax reform
Publisher
ELSEVIER SCIENCE BV
Type
journal article