Investor Tax Rationality and the Relationship between Dividend Yields and Equity Returns

Posted: 6 Dec 2002

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Abstract

Morgan and Thomas (1998) contend that the empirically observed relationship between UK stock returns and dividend yields (subject to an imputation tax system) cannot be reconciled with tax rationality. In response, this present note re-examines the theoretical basis for this conclusion. We conclude that the empirical evidence of market behavior may at present be interpreted generally as consistent with investor tax-based rationality.

Keywords: tax rationality, ex-day price behavior, dividend yield, personal taxes, imputation tax system, discounted dividends, asset pricing, payout policy

JEL Classification: G12, G35

Suggested Citation

Dempsey, Michael J., Investor Tax Rationality and the Relationship between Dividend Yields and Equity Returns. Available at SSRN: https://ssrn.com/abstract=359120

Michael J. Dempsey (Contact Author)

Ton Duc Thang University (TDTU) ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

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