A microstructure analysis of ex-dividend stock price behavior before and after the 1984 and 1986 Tax Reform Acts

Ex-dividend research is extended by explicitly modeling trading at bid and ask quotations. This refinement distinguishes between buying and selling for long-term investors and short-term dividend capture traders. It also explicitly incorporates the bid ask spread and eliminates some potential measur...

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Bibliographic Details
Published inThe Journal of business (Chicago, Ill.) Vol. 69; no. 3; p. 313
Main Author Koski, Jennifer Lynch
Format Journal Article
LanguageEnglish
Published Chicago University of Chicago, acting through its Press 01.07.1996
Subjects
Dividends
Economic impact
Economic models
Ex dividend
Federal legislation
Fiscal policy
Investments
Profits
Securities analysis
Stock prices
Studies
Tax rates
Tax reform
US
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Summary:Ex-dividend research is extended by explicitly modeling trading at bid and ask quotations. This refinement distinguishes between buying and selling for long-term investors and short-term dividend capture traders. It also explicitly incorporates the bid ask spread and eliminates some potential measurement errors that may bias returns. Marginal conditions are tested during 1983 and 1988, periods that span the 1984 and 1986 Tax Reform Acts. Results for long-term investors are consistent with the elimination of favorable capital tax gains. At observed prices, tax-neutral short-term traders cannot profit. Corporate dividend capture traders face profit opportunities during 1983 that disappear by 1988.
ISSN:0021-9398
1537-5374
DOI:10.1086/209693