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
Date Written: March 13, 2018
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: Suggested Citation