Tax reform and the identity of marginal traders around ex-dividend days

Yun-lan Tseng and Shing-yang Hu

Pacific-Basin Finance Journal, 2013, vol. 25, issue C, 181-199

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.

Keywords: Ex-dividend day; Tax reform; Marginal trader; Arbitrage (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:25:y:2013:i:c:p:181-199

DOI: 10.1016/j.pacfin.2013.08.009

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