Taxation and the Ex-Dividend Day Behavior of Common Stock Prices

45 Pages Posted: 21 Mar 2001

See all articles by Jerry Green

Jerry Green

Harvard University, HBS Negotiations, Organizations and Markets Unit; Dept. of Economics; National Bureau of Economic Research (NBER)

Date Written: July 1980

Abstract

The behavior of stock prices around ex-dividend days has been suggested as evidence for tax-induced clientele effects and as a means to estimate the average effective tax rate faced by investors. In this paper these possibilities are examined theoretically and empirically. Theoretically it is shown that the measured price drop per dollar of dividend may provide a biased estimate of the effective tax rate. Looking at the volume of trade around ex-dividend days we show that the conditions under which it would be unbiased are unlikely to hold. Strong evidence, based on a broader database than that used by previous investigators, is presented for the presence of the clientele effect.

Suggested Citation

Green, Jerry R., Taxation and the Ex-Dividend Day Behavior of Common Stock Prices (July 1980). NBER Working Paper No. w0496. Available at SSRN: https://ssrn.com/abstract=263378

Jerry R. Green (Contact Author)

Harvard University, HBS Negotiations, Organizations and Markets Unit; Dept. of Economics ( email )

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Boston, MA 02163
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617-495-3950 (Phone)
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National Bureau of Economic Research (NBER)

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