Investor Tax Rationality and the Relationship between Dividend Yields and Equity Returns
Posted: 6 Dec 2002
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: Suggested Citation