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http://ssrn.com/abstract=1002639
 
 

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The Ex-Day Pricing of Dividends for REITs


Oliver Zhen Li


National University of Singapore

David P. Weber


University of Connecticut - Department of Accounting

July 2007


Abstract:     
REIT dividends can be divided into three components based on how they are taxed to the recipient shareholders: ordinary income, long-term capital gains, and return of capital. This variation in tax characteristics enables us to examine the cross-sectional pricing of dividends on the ex-days. Since the ordinary income component of dividends is tax penalized, it should lead to positive ex-day returns while the other two components should have limited effects. We provide evidence consistent with this argument. In particular, abnormal returns and trading volume around REIT ex-days appear to be driven by the component taxed as ordinary income, but not the other components. Our results support a tax-based explanation for the ex-day pricing of dividends and investor trading behavior.

Number of Pages in PDF File: 39

Keywords: dividend taxes, ex-dividend day returns, tax-based trading, real estate investment trusts

JEL Classification: G12, G35, H24

working papers series


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Date posted: July 25, 2007  

Suggested Citation

Li, Oliver Zhen and Weber, David P., The Ex-Day Pricing of Dividends for REITs (July 2007). Available at SSRN: http://ssrn.com/abstract=1002639 or http://dx.doi.org/10.2139/ssrn.1002639

Contact Information

Oliver Zhen Li
National University of Singapore ( email )
Department of Accounting
Singapore
David P. Weber (Contact Author)
University of Connecticut - Department of Accounting ( email )
School of Business
Storrs, CT 06269-2041
United States
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