Taxes and Ex-Dividend Day Returns: Evidence from REITs

Posted: 1 Sep 2009 Last revised: 16 Dec 2009

See all articles by Oliver Zhen Li

Oliver Zhen Li

National University of Singapore (NUS)

David P. Weber

University of Connecticut - Department of Accounting

Date Written: September 1, 2009

Abstract

The distributions of Real Estate Investment Trusts (REITs) are comprised of components that differ in how they are taxed to the recipient shareholders. This variation in tax characteristics enables us to study the effect of shareholder taxes on stock prices around ex-dividend days while avoiding the non-tax confounds and inter-temporal tests that have hampered the interpretation of previous studies. Using a dataset that includes the component makeup of individual REIT distributions, we provide evidence that abnormal returns and trading volume around ex-dividend days are driven by the component of the distributions that is most tax-penalized. Our results support a tax-based explanation for ex-dividend day pricing and investor trading behavior.

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

JEL Classification: G12, G35, H24

Suggested Citation

Li, Oliver Zhen and Weber, David P., Taxes and Ex-Dividend Day Returns: Evidence from REITs (September 1, 2009). National Tax Journal, Vol. 62, No. 4, December 2009. Available at SSRN: https://ssrn.com/abstract=1465825

Oliver Zhen Li

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

David P. Weber (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
560
PlumX Metrics