Ex-Dividend Day Trading: Who, How, and Why?

37 Pages Posted: 25 Mar 2005

Date Written: February 25, 2005

Abstract

This study examines ex-dividend day trading behavior of all investors in the entire Finnish stock market. Consistent with the dynamic dividend clientele explanation, investors with a preference for dividend income buy shares cum-dividend and sell ex-dividend; the reverse is true for investors with the opposite preferences. Untaxed mutual funds engage in overnight arbitrage by selling shares cum and buying ex. Studying trades at the level of an individual investor shows idiosyncratic risk to be an important determinant in the choice of tax arbitrage stock. Analysis of the proportion of tax-motivated overnight trades reveals that transaction costs and dividend yield jointly determine whether the degree of tax arbitrage activity is nonzero.

Keywords: ex-dividend day, tax arbitrage, dividend clientele

JEL Classification: G35

Suggested Citation

Rantapuska, Elias Henrikki, Ex-Dividend Day Trading: Who, How, and Why? (February 25, 2005). Available at SSRN: https://ssrn.com/abstract=686847 or http://dx.doi.org/10.2139/ssrn.686847

Elias Henrikki Rantapuska (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

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