Investor Tax Heterogeneity and Ex-Dividend Day Trading Volume

Posted: 13 Nov 2004

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)

Abstract

We propose that ex-dividend day excess volume is motivated by tax heterogeneity among investors, and thus is increasing in investor tax heterogeneity. Institutional ownership is our measure of heterogeneity. Since investor heterogeneity is a concave function of institutional ownership, we hypothesize that ex-day volume is a concave function of institutional ownership. Cross-sectional tests support the tax-motivated trading hypothesis. Additional tests, using trade size and pension ownership as proxies for institutional trades, yield similar results. We contribute to the literature by considering the interaction between payout policy and ownership structure in explaining the cross-sectional variation in ex-day volume.

JEL Classification: G10, G32, G38

Suggested Citation

Dhaliwal, Dan S. and Li, Oliver Zhen, Investor Tax Heterogeneity and Ex-Dividend Day Trading Volume. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=617443

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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