Who Wants to Trade Around Ex-Dividend Days?

44 Pages Posted: 12 Mar 2005

See all articles by Shing-yang Hu

Shing-yang Hu

National Taiwan University - Department of Finance

Yun-lan Tseng

National Pingtung Institute of Commerce

Date Written: October 2004

Abstract

This paper examines order flows around ex-dividend dates on the Taiwan Stock Exchange. Not only does Taiwan's tax code allow us to separate the tax hypothesis from other explanations, but Taiwan's data also permits us to examine the heterogeneity of investors' behavior around ex-dividend dates. We find that, different types of investors show entirely different patterns of order flows. For both taxable and non-taxable samples, small investors sell before the ex-date and start to buy from the ex-date, which suggests that small investors prefer low-priced stocks. We find weaker evidence consistent with the tax hypothesis: foreigners and large domestic investors who are tax-disadvantaged avoid participating in taxable dividends. We also find strong evidence that tax-neutral institutions play the role of short-term arbitrageurs around ex-dividend dates.

Keywords: Ex-date, stock dividend, tax, noise, order imbalance

JEL Classification: G14, G15, G30, G35

Suggested Citation

Hu, Shing-yang and Tseng, Yun-lan, Who Wants to Trade Around Ex-Dividend Days? (October 2004). Available at SSRN: https://ssrn.com/abstract=675243 or http://dx.doi.org/10.2139/ssrn.675243

Shing-yang Hu (Contact Author)

National Taiwan University - Department of Finance ( email )

Room 715, School of Management
85, Sec. 4, Roosevelt Rd.
Taipei
Taiwan
+886 2 33661085 (Phone)
+886 2 23661299 (Fax)

Yun-lan Tseng

National Pingtung Institute of Commerce ( email )

51 Min-Sheng E. Road
Pingtung, Taiwan 900
China

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