Prime and Score Premia: Evidence Against the Tax-Clientele Hypothesis

Linda Canina and Bruce Tuckman

Financial Management, 1996, vol. 25, issue 4

Abstract: Primes and scores split the cash flows of a share of stock into dividend and capital gain components, respectively. An analysis of the transaction prices reveals that the sum of prime and score prices exceeds the price of the underlying stock. This paper develops a tax-clientele explanation of this premium over the stock price. It test jointly the clientele effect and an after-tax version of the Black-Scholes option pricing formula. The data reject this joint hypothesis in a manner that suggest the tax-clientele model is not supported.

Date: 1996
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