Ex day effects of the 2003 dividend tax cut

Rakesh Bali and Jack Clark Francis

International Review of Economics & Finance, 2016, vol. 41, issue C, 11-22

Abstract: We analyze ex day dynamics around the May 2003 dividend tax cut in a framework with arbitrageurs as liquidity providers. Raw returns and ratios for all groups don't change significantly around the event but the volatilities decline significantly. The volume declines more (less) strongly for high (low) yields. This is consistent with the reduction in the differential tax rates leading to a reduced demand for capital losses around the ex day, and a reduction in informed trading. The price dynamics for the one week before and after periods also support a market microstructure explanation. Evidence on market quality is mixed.

Keywords: Ex day; Tax clienteles; Transaction costs; Price discreteness; Bid-ask prices (search for similar items in EconPapers)
JEL-codes: G12 G14 G35 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:41:y:2016:i:c:p:11-22

DOI: 10.1016/j.iref.2015.09.007

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