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Stock Market Behavior on Ex-Dividend Dates: The Case of Cum-Ex Transactions in Germany

Posted: 29 Apr 2017 Last revised: 20 Sep 2017

Thiess Buettner

FAU

Carolin Holzmann

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg

Felix Kreidl

Friedrich-Alexander Universität (FAU)

Hendrik Scholz

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg

Date Written: April 28, 2017

Abstract

This paper explores whether stock-market arbitrage exploits profit opportunities arising from tax fraud. We focus on so-called cum-ex trades. These trades rest on the issuance of withholding-tax certificates that can be used for a tax-credit or refund without previous withholding-tax payment. We provide a theoretical analysis showing that without false tax certificates cum-ex trades would be unprofitable. Furthermore, we show that if profit opportunities associated with the false tax certificates are exploited, cum-ex trading alters the price-drop ratio at the ex-dividend day. The empirical analysis provides evidence using data of German stocks for the years 2009 to 2015. Our identification strategy exploits variation in the withholding-tax liability of dividends as well as differences in the withholding-tax procedure over time. The results indicate that price-drop ratios at ex-dividend days can be explained by cum-ex trades. Consistent with cum-ex trading, the data also shows large increases in trading volumes around ex-dividend dates.

Keywords: Dividend taxes; Capital gains taxes; Price-drop ratio; Ex-dividend dates; Tax clienteles; Tax compliance; Tax fraud; Withholding tax; Tax crediting

JEL Classification: H25, H26, G12

Suggested Citation

Buettner, Thiess and Holzmann, Carolin and Kreidl, Felix and Scholz, Hendrik, Stock Market Behavior on Ex-Dividend Dates: The Case of Cum-Ex Transactions in Germany (April 28, 2017). Available at SSRN: https://ssrn.com/abstract=2960015 or http://dx.doi.org/10.2139/ssrn.2960015

Thiess Buettner

FAU ( email )

Lange Gasse 20
Nürnberg, Bavaria 90403
Germany

Carolin Holzmann

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg ( email )

Lange Gasse 20
Nuremberg, 90403
Germany

Felix Kreidl

Friedrich-Alexander Universität (FAU) ( email )

Erlangen-Nürnberg
Lange Gasse 20,
Nürnberg
Germany

Hendrik Scholz (Contact Author)

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg ( email )

Finance and Banking
Lange Gasse 20
Nürnberg, Bavaria 90403
Germany
0049-911-5302649 (Phone)
0049-911-5302466 (Fax)

HOME PAGE: http://www.finanzierung.wiso.uni-erlangen.de

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