Market Arbitrage of Cash Dividends and Franking Credits

14 Pages Posted: 4 Aug 2006

See all articles by David J. Beggs

David J. Beggs

MIR Investment Management

Christopher L. Skeels

University of Melbourne - Department of Economics

Abstract

Since 1986, dividend imputation has influenced the ex-dividend day behaviour of Australian share prices. This paper explores the effects of dividend imputation on ex-dividend share price drop-off from its inception until mid-2004, with particular attention paid to the differential effects of cash dividends and franking credits. We also explore the effects of the six major legislative amendments to the dividend imputation system that were introduced over the sample period. Only the most recent tax change, which provided full income rebates for unused franking credits, appears to have caused the market to put a statistically significant value on franking credits.

Suggested Citation

Beggs, David J. and Skeels, Christopher L., Market Arbitrage of Cash Dividends and Franking Credits. Economic Record, Vol. 82, No. 258, pp. 239-252, September 2006, Available at SSRN: https://ssrn.com/abstract=922426 or http://dx.doi.org/10.1111/j.1475-4932.2006.00337.x

David J. Beggs

MIR Investment Management

Level 40
50 Bridge St
Sydney, New South Wales 2000
Australia

HOME PAGE: beggsdave@yahoo.com

Christopher L. Skeels (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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