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

42 Pages Posted: 29 Apr 2017 Last revised: 18 Mar 2018

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Carolin Holzmann

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics

Felix Kreidl

Friedrich-Alexander-Universität Erlangen-Nürnberg

Hendrik Scholz

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics

Date Written: March 13, 2018

Abstract

This paper explores the tax incentives for stock trades around dividend dates, so called "cum-ex" trades, in the context of the German withholding tax on dividends. As we show in this paper, if the stock market equilibrium is characterized by a lack of further arbitrage opportunities for German institutional investors, cum-ex trades can only be profitable in the presence of collusive withholding non-compliance of buyer and seller. Under collusion, trades should exert no effects on the market-price but may show up in transaction volumes depending on data coverage. These empirical implications are tested using daily data for major publicly traded German shares from 2009 to 2015. The results confirm an increase in transactions shortly before dividend dates in particular for stocks that have both above-average taxable dividend yields and transaction volumes. The results also confirm the absence of significant effects on market prices.

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 (March 13, 2018). Available at SSRN: https://ssrn.com/abstract=2960015 or http://dx.doi.org/10.2139/ssrn.2960015

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Lange Gasse 20
Nürnberg, Bavaria 90403
Germany

Carolin Holzmann

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics ( email )

Lange Gasse 20
Nuremberg, 90403
Germany

Felix Kreidl

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Erlangen-Nürnberg
Lange Gasse 20,
Nürnberg
Germany

Hendrik Scholz (Contact Author)

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics ( 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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