Investor Tax Heterogeneity and Ex-Dividend Day Trading Volume - the Effect of Dividend Yield and Institutional Ownership

47 Pages Posted: 12 Oct 2003

See all articles by Dan S. Dhaliwal

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Oliver Zhen Li

National University of Singapore (NUS)

Date Written: September 2003

Abstract

We demonstrate how the level of institutional ownership as a measure of tax-induced investor heterogeneity impacts the trading volume effect of dividend yield around ex-dividend days. Cross-sectional tests support the tax-motivated trading hypothesis: 1) Ex-day excess trading volume increases in dividend yield and this positive relation is a concave quadratic function of the level of institutional ownership. 2) The volume effect of dividend yield peaks when the level of institutional ownership is at 32.18% - lower than 50%, consistent with the view that institutional investors may be more risk tolerant than individual investors. 3) Across tax regimes, some support is also found for the ex-day tax-motivated trading hypothesis. We contribute to the literature by considering the interaction between payout policy and ownership structure in explaining the variation in ex-day excess trading volume.

Keywords: ex-dividend, trading volume, institutional ownership

JEL Classification: M41, G35, G32, H25

Suggested Citation

Dhaliwal, Dan S. and Li, Oliver Zhen, Investor Tax Heterogeneity and Ex-Dividend Day Trading Volume - the Effect of Dividend Yield and Institutional Ownership (September 2003). Available at SSRN: https://ssrn.com/abstract=450043 or http://dx.doi.org/10.2139/ssrn.450043

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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