Financial Crime Spillovers: Evidence from Cum-Ex and Cum-Cum Trading

52 Pages Posted: 28 Sep 2021 Last revised: 16 Jun 2023

See all articles by Valerie Laturnus

Valerie Laturnus

Durham University Business School; Goethe University Frankfurt - Department of Finance

Arne Reichel

Goethe University Frankfurt - Department of Finance

Mark Wahrenburg

Faculty of Economics and Business Administration

Date Written: September 24, 2021

Abstract

We examine single stock futures (SSF) trading and its respective underlyings around dividend ex-dates to study a specific form of dividend tax arbitrage across Europe, widely known as cum-ex and cum-cum trading. Both strategies have been designed to profit from illicit refunds of dividend tax using pre-arranged trades to exploit differences in investor tax treatments. Our difference-in-differences analysis shows that national legal reforms led to massive spillovers of cum-ex and cum-cum trading in neighboring countries with no legal protection measures. In cum-ex trades, SSF have been mispriced to share the realized gains between colluding parties, while ex-day stock prices are largely unaffected. All findings are robust to transaction cost, volatility, and foreign and domestic institutional ownership.

Keywords: Dividend stripping, Dividend withholding tax arbitrage, Tax-motivated trading, Single stock futures, Mispricing, Ex-dividend price drop, Foreign and domestic ownership

JEL Classification: H26, G12, G13, G14, G15

Suggested Citation

Laturnus, Valerie and Reichel, Arne and Wahrenburg, Mark, Financial Crime Spillovers: Evidence from Cum-Ex and Cum-Cum Trading (September 24, 2021). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2022, Available at SSRN: https://ssrn.com/abstract=3929997 or http://dx.doi.org/10.2139/ssrn.3929997

Valerie Laturnus (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, DE Hessen 60323
Germany

Arne Reichel

Goethe University Frankfurt - Department of Finance ( email )

Mertonstr. 17
Frankfurt, 60054
Germany
00496979833717 (Phone)

Mark Wahrenburg

Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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