Investor Tax Heterogeneity, Ex-Dividend Prices, Volumes, and Trades: Evidence from an Emerging Market

52 Pages Posted: 22 Aug 2010  

Hung-Ling Chen

Shih Chien University

Edward H. Chow

National Chengchi University (NCCU) - Department of Finance and Banking

Cheng-Yi Shiu

National Central University at Taiwan - Department of Finance

Date Written: August 20, 2010

Abstract

We analyze 987 ex-dividend events in Taiwan stock market between January 1992 and December 2006, and find that differential taxes really matter for the share prices and investors behaviors around the ex-dividend day. Ex-day price drop ratio increases with the investors’ average preference for dividend relative to capital gains. The excess volume around the ex-dividend day is positively correlated with the degree of tax heterogeneity and the gains from dividend capturing activities, and is negatively associated with the risk and transaction cost. We also find that wealthy investors sell shares cum-dividend and reverse to buy on ex-day; whilst less-wealthy investors, proprietary traders, and corporation shareholders trade in the opposite direction. Overall, our results provide support for the dynamic dividend clientele hypothesis.

Keywords: Ex-dividend day, Dividend tax, Dividend clientele

JEL Classification: G35

Suggested Citation

Chen, Hung-Ling and Chow, Edward H. and Shiu, Cheng-Yi, Investor Tax Heterogeneity, Ex-Dividend Prices, Volumes, and Trades: Evidence from an Emerging Market (August 20, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1662211 or http://dx.doi.org/10.2139/ssrn.1662211

Hung-Ling Chen

Shih Chien University ( email )

No.70, Dazhi St.,
Zhongshan Dist.,
Taipei, 104
Taiwan

Edward Hsing-Yi Chow

National Chengchi University (NCCU) - Department of Finance and Banking ( email )

64, Chih-nan Rd., Sec. 2, Mucha,
Taipei, 116
Taiwan
8862-2939-3091-81206 (Phone)
886-2-2939-3394 (Fax)

Cheng-Yi Shiu (Contact Author)

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

Paper statistics

Downloads
54
Rank
310,821
Abstract Views
488