Tax Effects on the Pricing of Australian Stock Index Futures

29 Pages Posted: 23 Nov 2011

See all articles by James R. Cummings

James R. Cummings

University of Sydney

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Date Written: December 2008

Abstract

This paper estimates the impact of the debt tax shield, cash dividends and imputation tax credits on the prices of Australian stock index futures. Relative to futures payoffs, the cost of financing the set of shares of the underlying index provides a mild tax shield, cash dividends are incompletely valued and imputation credits are worth at least fifty percent of their face value. The values that investors place on cash dividends and tax credits implied by index futures prices are close to those estimated in ex-dividend date stock price drop-off studies of the Australian share market.

Keywords: Stock index futures, Debt tax shield, Dividend valuation, Imputation credit

JEL Classification: G12, G13

Suggested Citation

Cummings, James R. and Frino, Alex, Tax Effects on the Pricing of Australian Stock Index Futures (December 2008). Available at SSRN: https://ssrn.com/abstract=1962960 or http://dx.doi.org/10.2139/ssrn.1962960

James R. Cummings

University of Sydney ( email )

Room 420 Codrington Building H69
University of Sydney, NSW 2006
Australia

HOME PAGE: http://www.sydney.edu.au

Alex Frino (Contact Author)

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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