Stock-Market Behavior on Ex-Dates: New Insights from German Stocks with Tax-Free Dividend

Felix Kreidl
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Felix Kreidl: Finance and Banking, Friedrich-Alexander-Universität Erlangen-Nürnberg, 90403 Nürnberg, Germany

IJFS, 2020, vol. 8, issue 3, 1-21

Abstract: We examine stock prices and the number of stocks traded around ex-dividend dates of German stocks with tax-free dividend. Tax-free dividends are temporarily tax-exempt, as they reduce the initial purchasing price of a stock. With our analysis of this particular group of German stocks, we can make clear predictions regarding ex-date prices and analyze the number of stocks traded around ex-dates, doing so without the systematic bias of cum-ex trades over time. For XETRA, our empirical results indicate that ex-date prices decline, on average, by the amount of the dividend. We do not find a significant relationship between a stock’s price-drop ratio and dividend yield. Further, the empirical analysis suggests that there is no significant correlation between an abnormal number of a stock being traded and its dividend yield. These results are most consistent with tax-motivated reasoning. However, our volume analysis reveals no consistency regarding the abnormal number of stocks traded for multilateral trading facilities.

Keywords: dividend; ex-dividend date; price-drop ratio; abnormal return; abnormal volume; dividend taxation; payout policy (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2020
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