The Ex†dividend Day Behaviour of REITs: Tax or Market Microstructure Effects

Kose John, Ravi S. Mateti, Duong Nguyen and Gopala Vasudevan

European Financial Management, 2016, vol. 22, issue 3, 341-366

Abstract: We examine the importance of the tax and microstructure theories in explaining the ex†dividend day behaviour of US REIT stock prices in three tick size regimes − the 1/8th, 1/16th, and decimal eras. We present a new theory that shows how the tax and microstructure effects interact to produce the observed ex†dividend day behaviour. Our theory also shows why in an era of a large tick size, as in the 1/8th era, the tax effects fail to get detected and the observed ex†dividend day behaviour could be misinterpreted as resulting solely from the microstructure effects.

Date: 2016
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