Evidence of ex-dividend trading by investor tax category

Abstract

This paper investigates the identity of the ex-dividend date traders using the Finnish unique database that records the trades of all investors on the market. We find evidence of two investor groups trading around the ex-dividend date: domestic non-financial investors doing dividend capturing arbitrage and foreign investors together with domestic financial institutions doing mainly the opposite. We report significant deviations from neutral buy probabilities for these investor groups around the ex-dividend date, deviations that are in line with their taxational characteristics. While a part of the trading can be characterized as dividend clientele trading, we also found arbitrage activity by some investors. Evidence of the arbitrage activity being more severe for high-yield stocks was also found. In terms of tax revenues lost, the economic importance of the short-term arbitrage activity seems to be minor.dividends, taxation, foreign owners,

Ex-dividend prices and investor trades: Evidence from Taiwan

“…This evidence is consistent with prior research, such as Rantapuska (2008) and Felixson and Liljeblom (2008), that different investor groups take opposite oppositions around the ex-day. The result reported in Table 8 provides support the predictions in Hypothesis 6.…”

“…In contrast, less wealthy investors, proprietary traders and other corporate shareholders tend to be on the buy side before the ex-day, then sell shares that have gone ex-dividend. Our results are consistent with the findings in Koski and Scruggs (1998), Rantapuska (2008) andFelixson andLiljeblom (2008) that investors with tax disadvantages will trade their dividend with those investors who have tax advantages. A noteworthy contribution of our analysis is that the tax-induced trade is stronger in the post-Act period, when the degree of tax heterogeneity is higher.…”

The Ex-Day Phenomenon and Share Price Performance on Emerging Markets

“…Traders subject to higher tax rates on dividends sell stocks right before ex-day and purchase the stocks back on ex-day; investor types subject to lower taxes show a reverse trading pattern. The findings indicate evidence of a dynamic dividend clientele concept, consistent with Koski, Scruggs [1998], Felixson, Liljeblom [2008], Rantapuska [2008]. Rantapuska [2008] supports the dynamic clientele theory for Finland -traders who have a choice regarding dividends purchase stocks right before the ex-day and dispose of them on the ex-day and vice versa.…”

Off‐Market Buybacks in Australia: Evidence of Abnormal Trading around Key Dates

“…15 For example, in the 2004 BHP off-market repurchase the company stated that the repurchase would proceed only at a discount of at least 5% to the volume weighted average price in the last five days up to and including the closing date of the buyback. 16 See, inter alia Elton and Gruber (1970); Kalay (1984); Miller and Scholes (1982); Lakonishok and Vermaelen (1986); Karpoff and Walkling (1988); Michaely and Vila (1995); Michaely and Vila (1996); Koski and Scruggs (1998); Allen and Michaely (2003); Callaghan and Barry (2003); Dhaliwal and Li (2006); Graham and Kumar (2006); and Felixson and Liljeblom (2008). 17 Dividend clienteles exist if firms that pay lower (higher) dividends attract investors with higher (lower) marginal tax rates (Miller and Modigliani 1961).…”